THE  NEW  YORK  STOCK  EXCHANGE 
IN  THE  CRISIS  OF  1914 

BY 

H.G.S.  NOBLE 

PRESIDENT,  NEW  YORK  STOCK  EXCHANGE 


THE  NEW  YORK 

STOCK  EXCHANGE  IN 

THE  CRISIS  OF  1914 


BY 
H.  G.  S.  NOBLE 


PRESIDENT 


GARDEN    CITY  NEW    YORK 

THE    COUNTRY    LIFE    PRESS 
1915 


Copyright,  1915 
THE  COUNTRY  LIFE  PRESS 


INTRODUCTION 

THE  year  1914  has  no  precedent  in  Stock  Exchange 
history.  At  the  present  time  (1915),  when  the  great 
events  that  have  come  to  pass  are  still  close  to  us,  even 
their  details  are  vivid  in  our  minds  and  we  need  no  one 
to  rehearse  them.  Time,  however,  is  quick  to  dim 
even  acute  memories,  and  Wall  Street,  of  all  places, 
is  the  land  of  forge tfulness.  The  new  happenings  of  all 
the  World  crowd  upon  each  other  so  fast  in  the  financial 
district  that  even  the  greatest  and  most  far-reaching  of 
them  are  soon  driven  out  of  sight.  This  being  the  case, 
it  has  seemed  to  the  writer  of  these  pages  that  some 
record  should  be  kept  among  the  brokerage  fraternity 
of  what  was  so  great  an  epoch  in  their  history,  and  that 
this  record  could  best  be  written  down  by  one  who 
happened  to  be  very  favorably  placed  to  know  the  story 
in  its  entirety. 

Of  course  the  archives  of  the  Exchange  will  always 
contain  the  minutes  of  Committees  and  other  docu- 
mentary material  embodying  the  story  of  the  past,  but 
this  dry  chronicle  is  never  likely  to  see  the  light  except 
when  unearthed  by  law  courts  or  legislative  committees. 
It  seems  worth  while,  therefore,  to  disentangle  the 
essential  thread  of  the  tale  of  1914  from  the  mass  of  un- 
readable detail  in  the  minute  books,  and  put  it  in  a  shape 
where  those  who  are  interested  may  look  it  over. 

This  is  not  an  easy  task.    To  differentiate  the  in- 

[i] 


INTRODUCTION 

teresting  and  the  essential  from  the  mass  of  routine 
material  is,  perhaps,  not  very  difficult,  but  to  present 
this  segregated  matter  in  a  form  that  will  not  be 
monotonous  is  much  more  of  a  problem.  The  pro- 
ceedings of  a  Committee  that  has  been  in  continuous 
session  must,  when  written  down,  partake  of  the  nature 
of  a  diary,  and  to  that  extent  be  tiresome  reading.  We 
shall,  therefore,  have  to  ask  the  indulgence  of  any  one 
who  happens  to  look  into  these  pages,  and  beg  him  to 
pass  over  the  form  for  the  sake  of  the  substance.  That 
the  substance  itself  is  of  deep  interest  goes  without 
saying.  It  was  given  to  the  Stock  Exchange  to  play  a 
great  part  in  a  momentous  world  crisis,  and  it  must  be 
of  profound  interest  to  know  how  that  part  was  played. 
Stock  Exchanges  are  a  relatively  recent  product  of 
modern  civilization,  and  like  new  comers  in  every  field 
they  are  suspected  and  misunderstood.  The  most 
complex  of  all  problems  are  economic  problems,  and  the 
functions  of  Stock  Exchanges  form  a  most  intricate  part 
of  political  economy.  It  has,  consequently,  been  a 
noticeable  phenomenon  in  all  contemporary  industrial 
society  that  the  activities  of  the  stock  markets  have 
been  a  constant  subject  of  agitation  and  legislative 
meddling.  Most  of  this  meddling  has  been  based  upon 
ignorance  and  misunderstanding,  but  in  a  broad  view 
this  ignorance  and  misunderstanding  are  excusable 
owing  to  the  novelty  and  above  all  the  great  complexity 
of  the  factors  at  work.  One  of  the  needs  of  the  time, 
therefore,  is  that  the  public,  and  their  representatives  in 
the  Legislatures,  should  be  enlightened  as  fast  as  possi- 
ble with  regard  to  the  immensely  important  uses  of 


INTRODUCTION 

these  institutions,  and  to  the  operation  of  their  very 
delicate  machinery. 

The  World  crisis  of  1914  forced  upon  us  an  object 
lesson  on  the  question  of  speculative  exchanges  in 
general  which  ought  to  be  of  lasting  profit.  For  years 
agitators  had  been  hard  at  work  all  over  the  country 
urging  the  suppression  of  the  Cotton  Exchanges,  and 
claiming  that  they  contained  gamblers  who  depressed 
the  price  of  the  cotton  growers'  product.  In  the 
summer  of  1914  the  dreams  of  these  agitators  were 
realized.  The  Cotton  Exchanges  were  all  closed  and 
the  cotton  grower  was  given  an  opportunity  of  testing 
the  benefits  of  a  situation  where  there  was  no  reliable 
agency  to  appraise  the  value  of  cotton.  The  result 
may  be  summed  up  in  the  statement  that  the  reopening 
of  the  Cotton  Exchanges  met  with  no  opposition.  A 
similar  object  lesson  was  furnished  in  the  case  of  the 
Stock  Exchanges.  They  were  all  closed,  and  for  a  few 
weeks  some  profound  thinkers  in  the  radical  press 
stated  that  the  country  was  showing  its  ability  to  dis- 
pense with  them.  When  the  time  for  their  reopening 
came,  however,  there  was  no  agitation  to  prevent  it.  On 
the  contrary  it  was  hailed  as  a  sign  of  the  resumption  of 
normal  financial  conditions  in  the  United  States. 

This  evidence  that  the  experience  of  1914  has  cast  a 
much  needed  light  on  the  public  value  of  speculative 
exchanges,  gives  a  further  excuse  for  describing  in  some 
detail  how  the  experience  was  passed  through  by  that 
greatest  of  all  these  institutions,  the  New  York  Stock 
Exchange. 


THE  NEW  YORK  STOCK  EXCHANGE 
IN  THE  CRISIS  OF  1914 


The  New  York  Stock  Exchange 

CHAPTER  I 

THE  CLOSING  OF  THE  EXCHANGE 

THE  Stock  Exchange  is  in  the  second  century  of  its 
existence  and  in  that  long  period  of  time  (long 
relatively  to  the  number  of  years  during  which  Stock 
Exchanges  have  been  known  to  the  world)  it  has  been 
forced  to  close  its  doors  only  twice.  The  first  occasion 
was  the  great  panic  of  1873,  the  after  effect  of  civil  war 
when  trading  was  suspended  for  ten  days;  the  second 
came  with  the  outbreak  of  the  world  War  in  the  close  of 
July,  1914.  These  two  remarkable  events  differ  pro- 
foundly in  the  gravity  of  the  circumstances  which 
brought  them  about.  In  1873,  although  the  financial 
disturbance  was  one  of  the  greatest  the  United  States 
has  ever  experienced,  the  trouble  was  mainly  local  and 
did  not  seriously  involve  the  entire  world.  The  Ex- 
change was  not  closed  in  anticipation  of  a  catastrophe 
but  was  obliged  to  shut  down  after  the  crash  had  taken 
place,  in  order  to  enable  Wall  Street  to  gather  up  its 
shattered  fragments.  The  measure  of  this  crisis  was 
the  ten  days  during  which  trading  was  suspended. 

Far  different  from  these  were  the  circumstances 
surrounding  July  31st,  1914.  On  that  eventful  date  a 
financial  earthquake  of  a  violence  absolutely  without 

[3] 


THE   NEW    YORK   STOCK   EXCHANGE 

precedent  shook  every  great  center  of  the  civilized 
world,  closing  their  markets  one  by  one  until  New  York, 
the  last  of  all,  finally  suspended  in  order  to  forestall 
what  would  have  surely  been  a  ruinous  collapse.  The 
four  and  a  half  months  during  which  this  suspension 
continued  stand  to  the  ten  days  closing  of  1873  in  a 
proportion  which  fitly  illustrates  the  relative  gravity  of 
the  two  historic  upheavals. 

In  the  light  of  these  facts  we  are  justified  in  asserting 
that  the  events  of  1914  are  the  most  momentous  that 
have  so  far  constituted  the  life  and  history  of  the  New 
York  Stock  Exchange,  and  consequently  that  some 
record  of,  and  commentary  upon,  these  facts  may  be  of 
value  to  the  present  members  of  that  body  and  of 
interest  and  profit  to  its  future  members. 

It  is  in  the  nature  of  panics  to  be  unforeseen,  but  the 
statement  may  be  truly  made  that  some  of  them  can  be 
more  unforeseen  than  others.  The  panic  of  1907  was 
preceded  by  anxious  forebodings  in  the  minds  of  many 
well  informed  people,  whereas  the  Venezuela  panic  in 
1895,  being  due  to  the  sudden  act  of  an  individual, 
came  out  of  a  clear  sky.  To  the  latter  class  distinctively 
belongs  the  great  convulsion  of  1914.  While  the 
standing  armies  of  Europe  were  a  constant  reminder  of 
possible  war,  and  the  frequent  diplomatic  tension  be- 
tween the  Great  Powers  cast  repeated  war  shadows  over 
the  financial  markets,  the  American  public,  at  least, 
was  entirely  unprepared  for  a  world  conflagration.  Up 
to  the  final  moment  of  the  launching  of  ultimata  between 
the  European  governments  no  one  thought  it  possible 
that  all  our  boasted  bonds  of  civilization  were  to  burst 

[4] 


IN    THE    CRISIS    OF    1914 

over  night  and  plunge  us  back  into  mediaeval  bar- 
barism. Wall  Street  was  therefore  taken  unaware,  and 
so  terrific  was  the  rapidity  with  which  the  world  passed, 
in  the  period  of  about  a  week,  from  the  confidence  of 
long  enduring  peace  to  the  frightful  realization  of  strife, 
that  no  time  was  given  for  men  to  collect  their  thoughts 
and  decide  how  to  meet  the  on-rushing  disaster. 

Added  to  the  paralyzing  effect  of  this  unheard  of 
speed  of  action,  there  came  the  disconcerting  thought 
that  the  conditions  produced  were  absolutely  without 
precedent.  Experience,  the  chart  on  which  we  rely  to 
guide  ourselves  through  troubled  waters,  did  not  exist. 
No  world  war  had  ever  been  fought  under  the  complex 
conditions  of  modern  industry  and  finance,  and  no  one 
could,  for  the  moment,  form  any  reliable  idea  of  what 
would  happen  or  of  what  immediate  action  should  be 
taken.  These  circumstances  should  be  kept  clearly  in 
mind  by  all  who  wish  to  form  a  clear  conception  of  this 
great  emergency,  and  to  estimate  fairly  the  conduct 
of  the  financial  community  in  its  efforts  to  save  the 
day. 

The  conditions  on  the  Stock  Exchange,  when  the 
storm  burst,  were  in  some  respects  very  helpful.  Specu- 
lation for  several  years  had  been  at  a  low  ebb,  so  that 
values  were  not  inflated  nor  commitments  extended. 
Had  such  a  war  broken  out  in  1906,  with  the  level  of 
prices  then  existing,  one  recoils  at  the  thought  of  what 
might  have  happened.  Furthermore,  the  unsettled 
business  outlook  due  to  new  and  untried  legislation  had 
fostered  a  heavy  short  interest  in  the  market,  thereby 
furnishing  the  best  safeguard  against  a  sudden  and 

[5] 


THE   NEW   YORK   STOCK   EXCHANGE 

disastrous  drop.  This  short  interest  was  a  leading 
factor  in  producing  the  extraordinary  resistance  of 
prices  in  New  York  which  caused  so  much  favorable 
comment  during  the  few  days  before  the  closing.  It 
were  well  if  ill-informed  people  who  deprecate  short 
selling  would  note  this  fact. 

During  the  week  preceding  July  31st,  therefore,  in 
the  face  of  a  practical  suspension  of  dealings  in  the 
other  world  markets,  the  New  York  market  stood  its 
ground  wonderfully.  The  decline  in  prices,  though  it 
became  violent  on  July  30th,  showed  no  evidence  of 
collapse.  There  was  a  continuous  market  everywhere 
up  to  the  last  moment,  and  call  money  was  obtainable 
at  reasonable  prices.  Here  was  a  perplexing  problem 
when  the  closing  of  foreign  Bourses  raised  the  question 
of  how  long  we  should  strive  to  keep  our  own  Exchange 
open. 

To  close  the  recognized  public  market  for  securities, 
the  market  which  is  organized  and  safeguarded  and 
depended  upon  as  a  standard  of  values,  is  an  under- 
taking of  great  responsibility  in  any  community.  To 
take  this  step  in  New  York,  which  is  one  of  the  four  pre- 
eminent financial  centers  of  the  world,  involved  a 
responsibility  of  a  magnitude  difficult  adequately  to 
estimate.  Upon  the  continuity  of  this  market  rest  the 
vast  money  loans  secured  by  the  pledge  of  listed 
securities;  numberless  individuals  depend  upon  it  in 
times  of  crisis  to  enable  them  to  raise  money  rapidly  by 
realizing  on  security  investments  and  thus  safeguarding 
other  property  that  may  be  unsaleable;  the  possessor  of 
ready  money  looks  to  it  as  the  quickest  and  safest  field 

[6] 


IN   THE    CRISIS   OF    1914 

in  which  to  obtain  an  interest  return  on  his  funds;  and 
the  business  world  as  a  whole  depends  upon  it  as  a  ba- 
rometer of  general  conditions. 

Add  to  this  the  fact  that  speculative  commitments  by 
individuals  from  all  over  the  world,  which  have  been 
based  upon  the  expectation  of  an  uninterrupted  market, 
are  left  in  hopeless  and  critical  suspense  if  this  market 
is  suddenly  removed,  and  it  becomes  apparent  that 
to  close  the  Exchange  is  manifestly  to  inflict  far- 
reaching  hardship  upon  vast  numbers  of  people.  It  is 
also  sure  to  be  productive  of  much  injustice.  In  bad 
times  sound  and  solvent  firms  are  anxious  to  enforce  all 
their  contracts  promptly  so  as  to  protect  themselves 
against  those  that  are  overextended;  an  obligatory 
suspension  of  business  compels  these  solvent  firms,  in 
many  cases,  to  help  carry  the  risks  of  the  insecure  ones 
and  deprives  the  provident  man  of  the  safety  to  which 
he  is  entitled. 

When  such  facts  as  these  are  duly  weighed  by  the 
agencies  having  the  authority  to  close  the  stock  market, 
it  becomes  clear  that  duty  dictates  a  policy  of  hands  off 
as  long  as  a  continuous  market  persists  and  purchasers 
continue  to  buy  as  the  decline  proceeds.  This  was  well 
illustrated  in  the  acute  panic  of  1907  when  an  enormous 
open  market  never  ceased  to  furnish  the  means  by 
which  needy  sellers  constantly  liquidated,  and  the 
possessors  of  savings  made  most  profitable  investments. 
To  have  closed  the  Exchange  during  that  crisis — 
assuming  it  to  have  been  possible — would  have  been  an 
unmixed  evil.  The  violent  decline  in  prices  was  the 
natural  and  only  remedy  for  a  long  period  of  over- 

[7] 


THE   NEW   YORK   STOCK   EXCHANGE 

speculation,  and  it  would  have  been  worse  had  it  been 
artificially  postponed. 

Considerations  of  this  general  character,  up  to  July 
30th,  caused  the  authorities  of  the  New  York  Stock 
Exchange  to  take  no  action,  although  the  other  world 
markets  had  all  virtually  suspended  dealings.  On 
July  30th,  the  evidences  of  approaching  panic  showed 
themselves.  An  enormous  business  was  done  ac- 
companied by  very  violent  declines  in  prices,  and,  al- 
though money  was  still  obtainable  throughout  the  day, 
at  the  close  of  business  profound  uneasiness  prevailed. 

On  the  afternoon  of  July  30th,  the  officers  of  the 
Stock  Exchange  met  in  consultation  with  a  number  of 
prominent  bankers  and  bank  presidents,  and  the  ques- 
tion of  closing  the  Exchange  was  anxiously  discussed. 
While  the  news  from  abroad  was  most  critical,  and  the 
day's  decline  in  prices  was  alarming,  it  was  also  true  that 
no  collapse  had  taken  place  and  no  money  panic  had  yet 
appeared.  The  bankers'  opinion  was  unanimous  that 
while  closing  was  a  step  that  might  become  necessary  at 
any  time,  it  was  not  clear  that  it  would  be  wise  to  take 
it  that  afternoon,  and  it  was  agreed  to  await  the  events 
of  the  following  day.  Meanwhile,  several  members  of 
the  Governing  Committee  of  the  Exchange  had  become 
convinced  that  closing  was  inevitable  and,  hi  opposition 
to  the  opinion  of  the  bankers,  urged  that  immediate 
steps  be  taken  to  bring  it  about.  It  may  seem  strange 
to  people  outside  of  Wall  Street  that  the  night  before 
the  Exchange  closed  such  apparent  indecision  and  dif- 
ference of  opinion  existed.  It  was,  however,  a  perfectly 

[8] 


IN   THE   CRISIS   OF    1914 

natural  outcome  of  an  unprecedented  situation.  The 
crisis  had  developed  so  suddenly,  and  the  conditions 
were  so  utterly  without  historic  parallel,  that  the  best 
informed  men  found  themselves  at  a  loss  for^  gui- 
dance. 

During  the  evening  of  July  30th  the  conviction  that 
closing  was  imperative  spread  with  great  speed  among 
the  large  brokerage  firms.  Up  to  a  late  hour  of  the 
night  the  President  of  the  Exchange  was  the  recipient  of 
many  messages  and  telegrams  from  houses  not  only  in 
New  York,  but  all  over  the  country^  urging  immediate 
action.  The  paralysis  of  the  wSrm's  Stock  Exchanges 
had  meanwhile  become  general.  The  Bourses  at 
Montreal,  Toronto  and  Madrid  had  closed  on  July  28th; 
those  at  Vienna,  Budapest,  Brussels,  Antwerp,  Berlin, 
and  Rome  on  July  29th;  St.  Petersburg  and  all  South 
American  countries  on  July  30th,  and  on  this  same  day 
the  Paris  Bourse  was  likewise  forced  to  suspend  dealings, 
first  on  the  Coulisse  and  then  on  the  Bourse  itself.  On 
Friday  morning,  July  31st,  the  London  Stock  Exchange 
officially  closed,  so  that  the  resumption  of  business  on 
that  morning  would  have  made  New  York  the  only 
market  in  which  a  world  panic  could  vent  itself. 

The  Governing  Committee  of  the  Exchange  were 
called  to  meet  at  nine  o'clock  (the  earliest  hour  at  which 
they  could  all  be  reached,  for  it  was  summer  and  many 
were  out  of  town)  and  at  that  hour  they  assembled  in 
the  Secretary's  office  ready  to  consider  what  action 
should  be  taken.  In  addition  to  the  Committee  many 
members  of  prominent  firms  appeared  in  the  room  to 
report  that  orders  to  sell  stocks  at  ruinous  prices  were 

[9] 


THE   NEW   YORK   STOCK   EXCHANGE 

pouring  in  upon  them  from  all  over  the  world  and  that 
security  holders  throughout  the  country  were  in  a  state 
of  panic.  It  would  be  hopeless  to  try  to  describe  the 
nervous  tension  and  excitement  of  the  group  of  perhaps 
fifty  men  who  consulted  together  under  the  oppressive 
consciousness  that  within  forty-five  minutes  (it  was 
then  a  quarter  past  nine)  an  unheard  of  disaster  might 
overtake  them.  It  was  determined  that  the  Governing 
Committee  should  go  into  session  at  once  as  there  was 
so  little  time  to  spare.  Just  as  they  started  for  their 
official  meeting  room  a  telephone  message  was  received 
from  a  prominent  banking  house  stating  that  the 
bankers  and  bank  presidents  were  holding  a  con- 
sultation and  suggesting  that  the  Exchange  authorities 
await  the  conclusion  of  their  deliberations. 

There  is  an  employee  of  the  Exchange  whose  duty 
it  is  to  ring  a  gong  upon  the  floor  of  the  big  board  room 
at  ten  o'clock  in  the  morning.  Until  that  gong  has 
rung  the  market  is  not  open  and  contracts  are  not 
recognized.  This  employee  was  instructed  not  to  ring 
the  gong  until  he  had  received  personal  orders  to  do  so 
from  the  President;  a  permanent  telephone  connection 
was  established  with  the  office  in  which  the  bankers 
were  conferring,  and  amid  a  horrible  suspense  the  out- 
come of  their  conference  was  awaited.  For  twenty 
minutes  this  strain  continued.  It  was  a  quarter  before 
ten  and  only  fifteen  minutes  remained  in  which  to  act. 
Meanwhile  the  brokers  were  fast  assembling  upon  the 
board  room  floor,  orders  were  piling  in  upon  them  to  sell 
at  panic  prices,  ten  o'clock  was  approaching,  and  al- 
though all  felt  that  the  opening  should  not  be  permitted 

[10] 


IN   THE   CRISIS   OF   1914 

no  one  had  a  word  from  the  Governing  Committee  as  to 
what  was  going  to  be  done. 

At  a  quarter  of  ten,  no  word  having  come  from  the 
bankers,  the  receiver  of  the  telephone  which  had  been 
connected  with  their  meeting  place  was  hung  up,  and 
the  Governing  Committee  were  called  in  session  to  take 
action.  As  they  took  their  seats  two  messages  reached 
them.  One  was  brought  by  a  prominent  member  of 
their  body  who  had  gone  to  the  office  of  the  President  of 
the  bank  Clearing  House  and  had  been  told  by  him, 
after  consulting  with  some  of  his  fellow  officers,  "We 
concur;  under  no  circumstances  is  it  our  suggestion,  but 
if  the  Exchange  desires  to  close,  we  concur."  The  other 
was  sent,  through  a  member  of  the  Exchange,  from  one 
of  the  leading  bank  Presidents  who  stated  that  closing 
would  be  a  grave  mistake  and  that  he  was  opposed  to  it. 

The  roll  was  called  and  thirty-six  out  of  the  forty- two 
members  answered  to  their  names.  The  Chair  having 
announced  the  purpose  of  the  meeting,  Mr.  Ernest 
Groesbeck  moved  that  the  Exchange  be  closed  until 
further  notice.  This  motion  was  carried,  not  un- 
animously but  by  a  large  majority.  Mr.  Groesbeck 
then  moved  that  the  delivery  of  securities  be  suspended 
until  further  notice,  and,  this  being  carried  unan- 
imously, made  a  third  motion  that  a  special  Committee 
consisting  of  four  members  of  the  Governing  Committee 
and  the  President  be  appointed  to  consider  all  questions 
relating  to  the  suspension  of  deliveries  and  report  to  the 
Governing  Committee  at  the  earliest  possible  moment. 
The  third  motion,  like  the  second  was  carried  unan- 


THE   NEW    YORK   STOCK   EXCHANGE 

imously  and  the  Committee  adjourned.  It  was  then 
four  minutes  of  ten.  On  the  instant  that  the  first 
motion  closing  the  Exchange  was  passed,  word  was  sent 
to  the  ticker  operators  to  publish  the  news  on  the  tape. 
In  this  way  the  seething  crowd  of  anxious  brokers  on  the 
floor  got  word  of  the  decision  before  ten  o'clock  struck. 
Immediately  upon  the  adjournment  of  the  Committee 
Mr.  George  W.  Ely  the  Secretary  of  the  Exchange 
ascended  the  Chairman's  desk  in  the  board  room  and 
made  the  formal  announcement,  which  was  greeted 
with  cheers  of  approbation.  The  President  promptly 
appointed  Messrs.  H.  K.  Pomroy,  Ernest  Groesbeck, 
Donald  G.  Geddes,  and  Samuel  F.  Streit  to  constitute, 
with  himself,  the  Committee  of  Five,  and  the  long 
suspense  and  anxiety  of  four  months  and  a  half  began. 

These  events,  which  were  crowded  into  a  few  fever- 
ish hours,  and  which  seemed  to  those  who  partici- 
pated in  them  more  like  a  nightmare  than  like  a 
reality,  present  some  aspects  that  are  especially  worthy 
of  detailed  description.  It  is  noticeable  that  the  vote 
to  close  the  Exchange  was  not  unanimous.  This 
shows  the  immense  complexity  of  a  situation,  which, 
even  at  the  last  moment,  left  some  two  or  three  con- 
scientious men  undecided.  It  is  a  fact  of  profound 
importance,  and  one  that  never  should  be  forgotten  by 
stock  brokers  or  by  the  public,  that  the  Exchange 
closed  itself  on  its  own  responsibility  and  without 
either  assistance  or  compulsion  from  any  outside  in- 
fluence. Many  false  assertions  by  professional  enemies 
of  the  institution  have  been  made  to  the  effect  that  the 
banks  forced  the  closing,  or  that  its  members  were  un- 


IN   THE   CRISIS   OF    1914 

willingly  coerced  by  outside  pressure.  The  facts  are 
that  the  influential  part  of  the  membership,  the  heads  of 
the  big  commission  houses,  made  up  their  minds  on  the 
evening  of  July  30th  that  closing  was  imperative,  and 
that  on  the  morning  of  July  31st  their  representatives  in 
the  Governing  Committee  took  the  responsibility  into 
their  own  hands,  the  bankers  having  been  unable  as  yet 
to  reach  a  conclusion. 

Immediately  after  the  closing  the  President  of  the  Ex- 
change visited  the  prominent  bank  president  who  had 
served  notice  at  the  last  moment  of  his  disapproval  of 
this  procedure.  He  was  found  in  his  office  in  con- 
sultation with  a  member  of  one  of  the  great  private 
banking  houses.  Both  the  bank  president  and  the 
private  banker  agreed  that,  in  their  opinion,  the  closing 
had  been  a  most  unfortunate  mistake.  It  was  an 
opportunity  thrown  away  to  make  New  York  the 
financial  center  of  the  world.  The  damage  was  done 
and  would  have  to  be  made  the  best  of,  but  had  the 
market  been  allowed  to  open  the  banks  would  have  come 
to  the  rescue  and  all  would  have  gone  well.  These 
gentlemen  admitted  that  the  Exchange  was  to  some 
extent  excusable  owing  to  the  negligence  of  the  bankers 
in  not  notifying  them  that  they  were  ready  to  protect 
the  money  market. 

It  may  safely  be  stated  that  within  twenty-four  hours 
after  this  interview  neither  the  two  bankers  in  question 
nor  any  one  else  in  Wall  Street  entertained  these  opinions. 
The  rise  of  exchange  on  London  to  $7 — a  rate  never 
before  witnessed;  the  marking  of  the  Bank  of  England's 
official  discount  rate  to  10%,  accompanied  by  a  run  on 

[13] 


THE    NEW    YORK   STOCK   EXCHANGE 

that  institution  which  resulted  in  a  loss  of  gold  in  one 
week  of  $52,500,000;  the  decline  of  the  Bank's  ratio  of 
reserve  from  the  low  figure  of  40%  to  the  paralyzing 
figure  of  14|%;  together  with  the  fact  that  the  surplus 
reserves  of  our  New  York  Clearing  House  banks  fell 
$50,000,000  below  their  legal  requirements,  were  reasons 
enough  in  themselves  to  convince  the  most  skeptical  of 
the  necessity  of  what  had  been  done. 

The  frightful  gravity  of  the  situation  which  had  arisen 
became  clearer  and  more  defined  in  people's  minds  a 
few  days  after  the  first  of  August  than  it  was  on  the 
morning  of  July  31st.  European  selling  had  been  pro- 
ceeding for  some  time  before  the  outbreak  of  War  and 
in  the  last  few  days  before  closing  had  been  temporarily 
arrested  by  the  prohibitive  level  of  exchange  and  the 
risk  of  shipment  at  sea.  The  American  public  itself, 
however,  was  seized  with  panic  on  the  evening  of  July 
30th,  and  on  the  morning  of  July  31st  brokers'  offices 
were  flooded  with  orders  to  sell  securities  for  what  they 
would  bring  and  without  reference  to  values.  Had  the 
market  been  permitted  to  open  on  that  Friday  morning 
the  familiar  Wall  Street  tradition  of  "Black  Friday" 
would  have  had  a  meaning  more  sinister  than  ever  had 
been  dreamed  of  before. 

In  all  previous  American  panics  the  foreign  world 
markets  were  counted  upon  to  come  to  the  rescue  and 
break  the  fall.  Imports  of  gold,  foreign  loans,  and 
foreign  buying  were  safeguards  which  in  past  crises  had 
been  counted  upon  to  prevent  utter  disaster.  On  this 
occasion  our  market  stood  by  itself  unaided;  an  un- 
thinkable convulsion  had  seized  the  world;  panic  had 

[14] 


IN   THE    CRISIS   OF   1914 

spread;  even  the  bargain  hunter  was  chilled  by  the  un- 
precedented conditions;  there  were  practically  no 
buyers.  A  half  hour's  session  of  the  Exchange  that 
morning  would  have  brought  on  a  complete  collapse  in 
prices;  a  general  insolvency  of  brokerage  houses  would 
have  forced  the  suspension  of  all  business;  the  banks, 
holding  millions  of  unsaleable  collateral,  would  have  be- 
come involved;  many  big  institutions  would  have  failed 
and  a  run  on  savings  banks  would  have  begun.  It  is 
idle  to  speculate  upon  what  the  final  outcome  might 
have  been.  Suffice  it  to  say  that  these  grave  conse- 
quences were  prevented  in  the  nick  of  time  by  the 
prompt  and  determined  action  of  the  Stock  Exchange, 
and  by  that  alone. 

Any  decisive  step  whether  right  or  wrong  always  finds 
its  critics.  There  were  a  few  people  who  criticised  the 
Exchange  for  closing  too  soon  and  thought  that  the 
feeling  of  panic  was  increased  by  this  action.  These 
few  were  mostly  converted  from  their  opinions  as  the 
situation  became  clearer.  There  was  a  larger  number 
who  took  the  ground  that  the  Exchange  had  not  closed 
soon  enough,  and  urged  that  had  the  step  been  taken  a 
few  days  sooner  a  considerable  decline  in  values  would 
have  been  prevented.  It  is  strange  that  the  latter 
critics  did  not  stop  to  reflect  on  how  great  an  advantage 
it  was,  all  through  the  anxious  days  of  August,  to  have 
had  the  New  York  market  liquidated  as  far  as  it  could 
be  without  disaster,  and  the  level  of  closing  prices  rel- 
atively low.  How  vastly  greater  would  have  been  the 
task  of  safeguarding  the  situation  in  the  face  of  declining 

[15] 


THE   NEW    YORK    STOCK   EXCHANGE 

prices  in  the  "New  Street  Market"  had  the  closing 
prices  on  the  Exchange  been  ten  or  fifteen  points 
higher,  The  truth  is  that  the  Exchange  was  closed  at 
the  very  best  possible  moment.  The  market  was  kept 
open  as  long  as  liquidation  could  safely  be  carried  on 
(thus  immensely  diminishing  the  pressure  to  be  with- 
stood during  the  suspension)  and  it  was  closed  at  the 
very  instant  that  a  collapse  was  threatened. 

The  above  facts  suggest  some  reflections  with  regard 
to  the  agitation  for  governmental  interference  with  or 
control  of  the  Exchange.  The  act  of  closing  necessi- 
tated the  prompt  decision  of  men  thoroughly  familiar 
with  the  circumstances  in  a  period  of  tune  actually 
measured  by  minutes.  If  it  had  been  necessary  to 
reach  government  officials  unfamiliar  with  details, 
convince  them  of  the  necessity  of  action,  and  overcome 
the  invariable  friction  of  public  machinery,  the  financial 
world  would  have  been  prostrated  before  the  first  move 
had  been  made.  If  the  Exchange  had  been  an  in- 
corporated body,  and  had  been  closed  in  the  face  of  the 
difference  of  opinion  and  possible  conflict  of  interests 
that  existed  at  the  time,  it  would  have  been  possible  for 
a  temporary  injunction  to  have  been  brought  against 
its  management  restraining  its  freedom  to  meet  the 
emergency.  Long  before  the  merits  of  such  an  in- 
junction could  have  been  argued  in  court  the  harm  would 
have  been  done,  and  ruin  would  have  overtaken  many 
innocent  people.  The  full  power  of  a  group  of  in- 
dividuals thoroughly  familiar  with  the  conditions  to  act 
without  delay  or  restraint  prevented  a  calamity  which 
can  safely  be  described  as  national. 

[16] 


IN   THE    CRISIS   OF   1914 

It  is  a  fact,  which  will  probably  never  be  appreciated 
outside  of  the  immediate  confines  of  Wall  Street,  that 
the  Exchange  was  unexpectedly  thrown  into  a  position 
where  the  interests  of  the  whole  country  were  put  in  its 
hands,  and  that  through  the  prompt  and  energetic 
action  of  the  thirty-six  men  who  faced  the  awful  re- 
sponsibility on  July  31st  financial  America  was  saved. 
It  is  true  that  in  saving  the  community  they  saved 
themselves,  but  so  do  the  soldiers  who  win  upon  the 
battle-field,  and  in  neither  case  is  the  obligation  can- 
celled by  the  selfish  considerations  involved.  When  in 
future  the  perennial  outcry  against  the  Exchange  is  being 
fostered  by  those  whose  minds  are  exclusively  occupied 
with  the  evils  that  are  inseparable  from  every  human 
institution,  let  us  hope  that  once  in  a  while  some 
friendly  voice  may  be  raised  to  remind  the  world  of 
July  thirty-first,  nineteen  hundred  and  fourteen. 


[17] 


CHAPTER  II 

THE  PERIOD  OF  SUSPENSION 

DURING  the  same  morning  on  which  the  momentous 
action  of  closing  was  taken  the  Committee  of  Five  met 
and  elected  the  President  of  the  Exchange  as  their 
Chairman.  The  acute  crisis  was  over,  the  danger  of  a 
cataclysm  had  been  averted,  but  the  situation  that  re- 
mained was  big  with  problems  full  of  menace  and 
uncertainty. 

Just  what  effect  the  closing  of  the  market  would  have 
was  a  matter  of  doubt.  On  all  previous  occasions 
when  the  facilities  of  the  Exchange  had  been  inadequate, 
or  had  been  shut  off,  an  unregulated  market  had 
established  itself  in  public  places  and  proceeded  un- 
controlled. Thus  during  the  Civil  War,  when  the 
volume  of  speculation  had  completely  outgrown  the 
limited  machinery  of  the  old  Board  of  Brokers,  a  con- 
tinuous market  developed  partly  in  the  street  and  partly 
in  a  basement  room  called  the  "Coal  Hole"  and 
flourished  during  the  day,  while  in  the  evening  it  was 
continued  in  the  lobby  of  the  Fifth  Avenue  Hotel. 
This  market  did  more  business  than  was  done  upon  the 
Exchange  itself,  and  a  few  years  after  the  War,  many  of 
its  members,  who  had  organized  into  the  "Open  Board 
of  Brokers,"  were  admitted  to  the  Stock  Exchange  in  a 
body.  The  suspension  of  business  in  1873  was  too  brief 

[18] 


IN   THE   CRISIS   OF    1914 

to  allow  of  the  formation  of  a  market  such  as  the  above, 
but,  while  it  continued,  cash  transactions  for  securities 
were  being  carried  on  every  day  in  the  financial  district. 

Would  results  such  as  these  obtain  on  this  occasion? 
Much  depended  upon  the  length  of  time  before  the 
Exchange  could  re-open,  but  this  in  itself  was  a  problem 
for  which  no  one  could  venture  a  solution.  Again,  a 
vast  volume  of  contracts  made  on  July  30th  had  been 
suspended.  How  long  could  the  enforcement  of  these 
contracts  be  successfully  prohibited,  and  above  all  how 
long  would  the  banks  and  financial  institutions  which 
were  lending  money  on  Stock  Exchange  collateral  re- 
frain from  calling  loans  when  they  were  deprived  of  any 
measure  of  the  value  of  their  security?  Over  its  own 
members  the  New  York  Stock  Exchange  might  exercise 
a  rigid  control,  and  it  could  safely  be  assumed  that  the 
other  Stock  Exchanges  of  the  country  would  cooperate 
with  it,  but  numberless  outside  agencies  existed  such  as 
independent  dealers  unaffiliated  with  exchanges,  and 
auctioneers,  any  of  whom  might  establish  a  market.  If 
declining  prices  were  made  through  media  of  this  de- 
scription, and  the  press  felt  called  upon  to  furnish  them 
to  the  public,  the  closing  of  the  Exchange  might  not 
suffice  to  prevent  panic  and  disaster. 

Oppressed  by  these  considerations,  and  by  an  ap- 
palling sense  of  responsibility,  the  new  Committee  of 
Five  began  its  labors  in  the  morning  of  July  31st.  The 
first  step  decided  upon  was  to  communicate  with  the 
Bank  Clearing  House  Committee.  Mr.  Francis  L. 
Hine,  President  of  the  Clearing  House,  was  invited 
to  meet  the  Committee  of  Five  which  he  did,  a  little 

[19] 


THE   NEW    YORK   STOCK   EXCHANGE 

later  in  the  day,  and  presented  to  them  the  following 
statement  of  the  action  taken  by  the  Clearing  House. 

"There  was  a  meeting  of  the  Clearing  House  Committee  thL: 
morning  in  view  of  the  closing  of  the  New  York  Stock  Exchange. 
It  was  the  opinion  of  the  Committee  that  the  business  and 
financial  condition  of  New  York  and  the  entire  country  was 
sound  but  that  the  situation  in  Europe  justified  extreme  pru- 
dence and  self-control  on  the  part  of  the  United  States;  that 
the  closing  of  the  Stock  Exchange  was  a  wise  precaution  by 
reason  of  the  disposition  of  all  Europe  to  make  it  the  market 
for  whatever  it  wished  to  sell,  and  that  in  this  country  there 
was  no  occasion  for  any  serious  interruption  of  the  regular 
course  of  business,  either  financial  or  mercantile." 

After  the  retirement  of  Mr.  Hine,  the  Chairman  of 
the  Committee  on  Clearing  House  of  the  Exchange 
stated  that  all  the  checks  given  to  the  Clearing  House 
had  been  certified,  and  a  notice  was  thereupon  sent  out  in- 
structing members  to  call  for  their  drafts  at  the  usual  hour. 
Thus  all  the  differences  due  on  the  day's  transactions  of 
July  30th  were  settled,  and  a  first  encouraging  step  was 
taken.  It  was  also  decided  to  permit  the  offering  of  call 
money  on  the  floor  of  the  Exchange. 

The  Committee  held  its  second  meeting  on  August 
1st  and  the  first  of  the  long  series  of  problems  growing 
out  of  the  closing  of  the  market  was  at  once  presented 
to  it.  A  letter  from  a  brokerage  house  doing  business 
with  Europe  was  received  in  which  it  was  pointed  out 
that  "arbitrageurs"  who  had  sold  stocks  in  New  York 
and  bought  them  in  London  during  the  previous  fort- 
night had  made  their  deliveries  by  borrowing  stock  in 
New  York;  that  the  stock  purchased  in  London  was 
due  to  arrive  on  this  side,  and  that  the  usual  process  of 

[20] 


IN   THE   CRISIS   OF   1914 

financing  it  by  returning  the  previously  borrowed  stock 
had  been  cut  off  through  the  suspension  of  unfulfilled 
contracts.  This  was  likely  to  lead  to  very  grave  em- 
barrassment because  call  money  had  practically  dis- 
appeared and  houses  to  whom  this  foreign  stock  was 
consigned  might  not  be  able  to  meet  their  obligation 
to  pay  for  it  as  it  arrived.  There  being  no  arrivals  of 
foreign  stock  expected  that  day,  the  Committee  de- 
ferred action,  and  thus  gained  time  to  think  out  ways 
and  means  of  meeting  the  difficulty. 

The  second  problem  presented  came  in  the  form  of  a 
request  for  permission  to  sell  securities  outside  of  the 
Exchange.  The  firm  of  S.  H.  P.  Pell  &  Co.  had  sus- 
pended, and  a  house  which  had  been  lending  them 
money  wished  to  be  authorized  to  sell  out  the  collateral. 
This  was  the  first  of  many  cases  brought  before  the 
Committee,  during  its  long  tenure  of  office,  in  which 
individuals  sought  for  a  special  privilege  to  sell  securi- 
ties they  were  anxious  to  market  while  trading  in  gen- 
eral was  forbidden.  In  this  case  the  applicants  were 
referred  to  that  section  of  the  Constitution  of  the  Ex- 
change in  which  it  is  provided  that  members  having 
contracts  with  insolvents  shall  close  out  these  contracts 
in  the  Exchange  when  the  securities  involved  are  listed. 
The  Exchange  being  closed,  this  provision  answered 
the  question  without  necessitating  any  independent 
action  on  the  part  of  the  Committee. 

From  the  moment  of  the  closing  of  the  Exchange  a 
growing  pressure  arose  to  determine  just  when  and 
how  it  should  be  re-opened.  The  desire  for  informa- 

[31] 


THE   NEW   YORK   STOCK   EXCHANGE 

tion  on  this  point  was  widespread,  and  when  the  grav- 
ity of  the  situation  became  clearer  to  the  community, 
a  great  anxiety  developed  that  the  re-opening  should, 
above  all,  not  be  premature.  Realizing  that  the  fear 
of  sudden  and  ill  considered  action  on  this  question 
was  becoming  dangerous  to  the  restoration  of  confi- 
dence, the  Committee  of  Five,  at  its  meeting  of  August 
3rd  authorized  the  following  statement. 

"Announcement  is  made  by  the  President  of  the  Stock  Ex- 
change, in  answer  to  inquiries  as  to  when  the  Exchange  will 
open,  that  ample  notice  of  such  opening  will  be  given." 

In  spite  of  this  notice  fear  that  the  Stock  Exchange 
might  act  injudiciously  lingered  for  some  time  longer 
until  the  constant  reiteration  by  its  officers  of  their 
intention  to  act  only  in  conjunction  and  in  consultation 
with  the  banks  permanently  allayed  it. 

By  Monday,  August  3rd,  a  steady  stream  of  letters 
had  begun  to  pour  in  upon  the  Committee  asking  advice 
and  direction  upon  any  number  of  questions  raised  by 
the  closing  of  the  market,  and  offering  every  kind  of  sug- 
gestion and  advice.  In  addition  to  this  it  soon  became 
evident  that  interviews  would  have  to  be  held  with  large 
numbers  of  people  for  the  purpose  of  securing  their  co- 
operation, influencing  their  conduct,  and  obtaining  in- 
formation. The  resolution  of  the  Governing  Committee 
by  virtue  of  which  the  Committee  of  Five  was  brought 
into  being  merely  stated  that  questions  such  as  these 
should  be  considered  and  reported  back  "at  the  earliest 
possible  moment."  Clearly  here  was  an  impossible 
situation.  The  immense  detail  of  the  work  which  was 


IN   THE   CRISIS   OF   1914 

beginning  to  unfold  itself  could  never  be  handled  by  so 
large  a  body  as  the  Governing  Committee  itself.  Realiz- 
ing that  this  difficulty  must  be  met  without  a  moment's 
delay  the  Committee  of  Five  requested  the  calling  of  a 
special  meeting  of  the  Governors  for  twelve  o'clock  the 
same  day  and  presented  to  them  the  following  resolu- 
tion, which  was  unanimously  adopted. 

"RESOLVED  :  That  the  Special  Committee  of  Five,  appointed  by 
the  Governing  Committee  on  July  31st,  be,  and  it  hereby  is,  author- 
ized during  the  present  closing  of  the  Exchange,  to  decide  all  ques- 
tions relating  to  the  business  of  the  Exchange  and  its  members." 

This  action  of  the  Governing  Committee,  while  it 
was  rendered  necessary  by  the  peculiar  requirements  of 
the  situation,  was  unprecedented  in  the  history  of  the 
Exchange,  for  never  before  had  such  powers  and  such 
responsibilities  been  put  in  the  hands  of  so  few  individ- 
uals. It  was  one  of  a  series  of  "war  measures"  by 
means  of  which  ends  were  achieved  that  would  not  have 
been  reached  in  any  other  way. 

Clothed  with  complete  authority  the  Committee 
met  again  in  the  afternoon  of  August  3rd  and  was  at 
once  confronted  with  a  request  for  a  ruling  on  the  ques- 
tion of  how  far  members  were  to  be  restrained  from 
dealing  outside  of  the  Exchange.  After  a  lengthy  dis- 
cussion the  following  was  approved  as  their  opinion. 

"It  was  the  intention  in  closing  the  Stock  Exchange  that 
trading  should  be  stopped  and  it  is  the  duty  of  loyal  members  to 
comply.  If  cases  come  into  your  office  where  it  is  absolutely 
necessary  to  trade,  do  so  as  quietly  as  possible  and  prevent  the 
quotation  from  being  published." 

[23] 


THE    NEW   YORK   STOCK   EXCHANGE 

It  will  be  noticed  that  the  policy  adopted  here  was  less 
stringent  than  what  came  later  when  the  growth  of  an 
outside  market  increased  the  dangers  of  the  situation. 

With  the  question  of  outside  dealings  there  at  once 
arose  the  closely  connected  question  of  the  danger 
arising  from  having  price  quotations  of  such  dealings 
made  public.  The  quotation  machinery  of  the  Ex- 
changes had  been  silenced  by  the  closing  of  those  insti- 
tutions, but  there  remained  the  public  auctioneers 
whose  sales,  if  they  took  place,  would  be  disseminated 
by  the  press  and  might  spread  panic  among  security 
holders  and  money  lenders.  The  auctioneers  in  New 
York,  Boston,  Philadelphia,  and  Chicago  were  at  once 
approached,  not  only  directly  but  through  their  bankers 
and  other  advisers.  It  was  a  disagreeable  task  as  these 
auctioneers  had  to  be  urged  to  cease  doing  business, 
but  it  was  rendered  unexpectedly  easy  by  the  courtesy 
and  friendliness  with  which  they  cooperated  for  the 
general  welfare.  So  loyal  were  these  various  agencies 
that  not  a  single  sale,  either  of  listed  or  unlisted  securi- 
ties, occurred  in  any  auction  room  of  the  country  until 
the  urgent  phases  of  the  crisis  had  passed. 

It  was  not  in  auction  rooms  alone,  however,  that 
prices  might  be  made;  dealings  were  liable  to  occur  in 
any  unexpected  locality,  and  it  was  urgent  that  prices 
of  an  alarming  character  should  be  kept  from  the 
public.  For  this  most  important  purpose  the  cooper- 
ation of  the  press  was  absolutely  necessary.  To  obtain 
this,  at  the  outset,  was  no  easy  matter.  The  closing  of 
the  Stock  Exchange  placed  the  financial  news  writers 

[24] 


IN   THE    CRISIS   OF    1914 

of  the  daily  press  in  a  curious  position.  With  them  were 
allied  that  group  of  financial  writers  connected  with  the 
various  Wall  Street  news  agencies,  the  several  financial 
journals  that  are  exclusively  devoted  to  Wall  Street 
affairs,  and  the  financial  correspondents  of  out  of  town 
newspapers.  All  told  there  were  about  one  hundred 
salaried  men  in  these  various  groups,  men  experienced 
in  financial  affairs,  widely  known  and  respected,  engaged 
in  a  work  which  had  never  been  interrupted  and  which, 
as  far  as  could  be  foreseen,  promised  to  furnish  them 
with  a  continuous  vocation. 

The  first  effect  of  the  war  was  a  general  curtailment  of 
newspaper  advertising,  a  rise  in  the  price  of  paper,  and  a 
greatly  increased  cost  of  the  news  of  the  day  owing  to 
excessive  cable  charges  for  foreign  dispatches.  Thus 
the  newspapers  suffered  a  rapidly  diminishing  revenue, 
and  they  found  it  necessary  to  discharge  many  of  their 
employees  and  to  reduce  the  salaries  of  others.  With  the 
Stock  Exchange  closed,  naturally  the  salaried  financial 
writers  were  among  the  first  to  feel  this  hardship. 

Those  whose  services  were  retained  throughout  this 
crisis  were  confronted  with  divided  responsibilities.  It 
was  their  duty  to  interpret  a  mass  of  more  or  less 
fantastic  rumors  at  a  time  when  nerves  were  over- 
wrought and  points  of  view  magnified  and  distorted. 
They  wished  to  prevent  the  publication  of  anything  of 
an  incendiary  nature,  while  at  the  same  time  a  necessity 
arose  for  presenting  to  the  public  the  news  to  which  it 
was  entitled.  Placed  in  such  a  position  there  was  a 
very  natural  impatience  here  and  there  to  have  the 
Exchange  reopened,  while  now  and  then  a  tendency 

[25] 


THE   NEW   YORK   STOCK   EXCHANGE 

became  manifested  to  publish  certain  news  of  the  day 
which,  while  interesting  to  the  public,  tended  to  handi- 
cap the  efforts  of  those  bent  only  on  reassurance  and 
calm  counsel.  At  times  it  became  somewhat  difficult  to 
prevent  the  publication  of  some  of  these  matters, 
particularly  of  the  prices  made  in  the  so  called  "gutter" 
market  which  sprang  up  in  New  Street.  And  yet  on 
the  whole  nothing  could  have  exceeded  the  fairness  and 
the  spirit  of  cooperation  of  these  gentlemen  in  this  trying 
time.  One  newspaper  even  went  so  far  as  to  cease  the 
publication  of  a  remunerative  page  of  small  advertise- 
ments having  to  do  with  dealings  in  outside  securities. 
This  was  done  at  the  request  of  the  Committee  without 
hesitation.  Others  cooperated  in  the  suppression  of 
advertising  on  the  part  of  questionable  people,  while 
correspondents  of  out  of  town  newspapers,  both 
foreign  and  domestic,  cheerfully  acceded  to  requests  to 
suppress  all  disturbing  financial  reports.  In  a  word,  the 
financial  department  of  the  whole  newspaper  press 
accepted  the  situation  philosophically,  bearing  their 
losses  without  complaint  and  supporting  without  cavil 
the  restrictive  measures  which  it  was  necessary  to 
employ. 

This  loyal  conduct  of  the  press  and  of  the  auctioneers 
was  one  of  the  great  factors  without  which  the  critical 
days  of  the  suspension  of  business  could  not  have  been 
successfully  surmounted. 

It  will  be  remembered  that  in  the  morning  of  July 
31st,  the  Governing  Committee  not  only  voted  to  close 
the  Exchange  but  also  declared  that  the  delivery  of 

[26] 


IN   THE    CRISIS   OF   1914 

securities  should  be  suspended  until  further  notice.  The 
motive  of  this  latter  action  was  to  prevent  the  possible 
insolvencies  that  were  likely  to  be  forced  if  purchasers 
were  compelled  to  pay  for  their  securities  in  the  absence 
of  a  call  money  market.  At  the  earliest  moment  that 
attention  could  be  given  to  it  the  Committee  of  Five 
requested  the  Chairman  of  the  Stock  Exchange  Clearing 
House  to  place  before  it  the  exact  figures  of  the  out- 
standing contracts.  These  figures  when  presented 
showed  that  there  were  stock  balances  open  on  Clearing 
House  order  amounting  to  $38,700,000  and  Ex-Clear- 
ing House  contracts  amounting  to  about  $61,000,000. 
Roughly  speaking  there  had  been  about  $100,000,000  of 
stock  sold  in  the  Exchange  on  July  30th,  the  delivery  of 
which  to  the  purchasers  had  been  suspended  by  the 
action  of  the  Governing  Committee.  Obviously  a  first 
great  step  toward  clearing  up  the  situation  and  prepar- 
ing the  ground  for  the  ultimate  reopening  of  the  market 
was  to  get  this  great  volume  of  contracts  settled,  so  that 
if  any  failures  were  inevitable  they  would  be  disposed 
of  beforehand. 

It  being  probable  that  many  of  the  purchasers  of  stock 
on  July  30th  were  in  a  position  to  finance  their  purchases 
even  in  the  midst  of  the  crisis  the  Committee  deemed  it 
wise  to  offer  every  possible  facility  for  the  immediate 
settlement  of  contracts  when  the  purchaser  was  in  this 
position.  They  therefore  issued  the  following  notice  on 
August  4th: 

"The  Special  Committee  of  Five  appointed  to  consider 
questions  connected  with  the  closing  of  the  Exchange  state  that 
tie  resolution  of  the  Governing  Committee  suspending  de- 

[27] 


THE   NEW   YORK   STOCK   EXCHANGE 

liveries  until  further  notice  does  not  mean  that  settlement  may 
not  be  made  by  mutual  consent  wherever  feasible.  The  Clear- 
ing House  of  the  Exchange  is  prepared  to  advise  and  assist, 
and  inquiries  should  be  made  in  person  there." 

At  the  request  of  the  Committee  of  Five  the  Com- 
mittee on  Clearing  House  at  once  undertook  the  task  of 
assisting  members  of  the  Exchange  in  closing  up  these 
contracts  and  used  its  clerical  force  for  that  purpose, 
thus  involving  much  careful  and  detailed  work.  They 
held  daily  continuous  meetings,  giving  their  personal 
attention  in  assisting  members,  and  using  a  care  that 
involved  both  tact  and  arduous  labor.  Through  their 
efforts  such  extraordinary  progress  was  made,  in  this 
complex  and  difficult  task,  that  by  September  22nd 
announcement  was  made  that  the  delivery  of  all 
Clearing  House  balances  had  been  completed  with  the 
exception  of  those  of  the  few  firms  whose  affairs  were  in 
the  hands  of  receivers.  These  were  settled  shortly 
afterwards  and  at  the  same  time  the  great  volume  of 
Ex-Clearing  House  contracts  were  also  completely 
fulfilled. 

This  is  one  of  the  most  extraordinary  and  gratifying 
experiences  of  the  great  crisis.  In  about  seven  weeks, 
at  a  time  when  money  was  unobtainable  and  the  con- 
dition of  panic  was  at  its  height,  this  huge  volume  of  un- 
settled contracts  was  met  and  consummated  by  voluntary 
cooperation  and  without  compulsion  of  any  kind.  In 
some  few  cases  selfishness  or  indifference  delayed  action 
on  the  part  of  individuals,  but  these  were  all  brought  to 
a  final  adjustment  by  the  influence  and  persuasion  of 
the  Committee. 

[28] 


IN   THE   CRISIS   OF   1914 

This  achievement  not  only  reflects  undying  credit 
upon  the  members  of  the  Exchange  by  showing  both 
the  sound  condition  of  their  business  and  their  zeal  to  act 
for  the  general  welfare,  and  creates  a  deep  sense  of 
obligation  to  the  Clearing  House  Committee  who  for 
many  long  weeks  worked  unceasingly  to  overcome  the 
difficulties  that  beset  the  path,  but  it  justifies  and  con- 
firms the  wisdom  of  the  New  York  Stock  Exchange  in 
adhering  to  the  practice  of  daily  settlements.  In  all 
the  great  European  centers,  where  trading  on  the 
fortnightly  settlement  basis  is  in  vogue,  the  restoration 
of  dealings  was  terribly  complicated  by  the  herculean 
task  of  clearing  up  back  contracts  that  extended  over 
many  days.  In  New  York,  when  conditions  so  shaped 
themselves  as  to  warrant  reopening  the  Exchange,  the 
back  contracts  of  its  members  had  all  been  settled  up 
two  months  before.  Had  our  system,  like  the  European, 
involved  "trading  for  the  account,"  every  additional 
day  of  back  contracts  added  to  the  $100,000,000  worth 
of  July  30th  would  have  stood  in  the  way  of  a  final 
settlement,  and  the  reopening  of  the  market  (which  was 
long  postponed  as  it  was)  would  have  been  much  further 
delayed. 

On  August  4th,  a  problem  which  had  loomed  upon 
the  horizon  the  day  after  the  closing  of  the  Exchange, 
was  brought  squarely  before  the  Committee.  A  dele- 
gation of  houses  dealing  in  securities  for  European 
account  appeared  and  stated  that  approximately 
$40,000,000  to  $50,000,000  of  securities  were  to 
arrive  "this  week,  beginning  to-morrow,  Wednesday," 

[29] 


THE   NEW   YORK   STOCK   EXCHANGE 

and  that  they  would  be  accompanied  by  sight  drafts 
which  would  have  to  be  financed.  This  alleged  great 
volume  of  securities  had  been  sold  in  this  market  for 
foreign  account  and  borrowed  in  New  York  in  order  to 
make  the  immediate  deliveries  that  our  day  to  day 
system  requires.  The  suspension  of  the  fulfillment  of 
contracts  declared  by  the  Exchange  made  it  impossible 
to  return  this  borrowed  stock,  and  the  houses  doing 
this  business  were  therefore  obliged  either  to  allow  the 
drafts  to  go  to  protest  or  finance  the  incoming  stock  until 
the  free  enforcement  of  contracts  was  again  permitted. 

With  money  practically  unobtainable,  and  general 
panic  prevailing,  it  is  needless  to  say  that  these  state- 
ments of  the  delegation  of  houses  doing  foreign  business 
were  a  severe  shock  to  the  Committee  of  Five.  A  rem- 
edy proposed  by  one  or  two  of  these  banking  houses  was 
that  the  people  from  whom  they  were  borrowing  stock 
should  be  required  to  take  it  back.  This  simple  expe- 
dient, while  eminently  satisfactory  from  the  standpoint 
of  the  borrower  of  stock,  was  not  very  helpful  to  the 
Committee,  as  it  would  merely  have  shifted  the  problem 
of  financing  the  stock  from  one  set  of  brokers  to  another, 
and  would  have  raised  the  dangerous  question  of  a  gene- 
ral enforcement  of  contracts  in  borrowed  securities.  It 
was  an  interesting  illustration,  among  some  others  to  be 
subsequently  experienced,  of  the  manner  in  which  cer- 
tain minds  can  become  entirely  absorbed  in  that  aspect 
of  a  question  which  deals  solely  with  personal  interest. 
After  careful  discussion  it  was  determined  that  the  coop- 
eration of  the  Clearing  House  banks  should  be  sought 
in  solving  the  difficulty.  The  Committee  of  Five  there- 

[30] 


IN   THE   CRISIS   OF   1914 

upon  sent  a  communication  to  the  Bank  Clearing  House 
committee  setting  forth  all  the  circumstances  connected 
with  the  expected  consignment  of  securities  as  stated  by 
the  delegation  of  banking  houses  and  requested  an  ap- 
pointment to  meet  them,  or  a  sub -committee  of  their 
members,  and  discuss  the  matter.  The  appointment 
was  obtained  for  the  following  morning,  August  5th, 
and  the  Chairman  and  Mr.  H.  K.  Pomroy  were  ap- 
pointed a  sub-committee  to  confer  with  the  Bankers 
and  directed  to  take  Mr.  Richard  Sutro  with  them  as  a 
representative  of  the  houses  doing  foreign  business. 

At  the  meeting  with  the  Clearing  House  bankers  it 
was  very  properly  decided  that  a  solution  of  the  pro- 
blem could  only  be  reached  when  an  exact  knowledge 
of  the  amount  of  money  required  to  pay  for  the  incom- 
ing securities  had  been  obtained,  the  figures  stated  by 
the  banking  houses  which  were  seeking  assistance  being 
only  estimates.  The  representatives  of  the  Stock  Ex- 
change agreed  to  obtain  this  exact  information  at  once, 
and  having  returned  and  stated  the  circumstances  to 
the  Committee  of  Five,  it  was  directed  that  the  follow- 
ing communication  be  sent  to  a  list  of  members  of  the 
Exchange  who,  it  was  understood,  were  to  have  foreign 
drafts  presented  to  them : — 

"The  Special  Committee  of  Five  requests  that  by  three 
o'clock  to-day  they  may  have  in  their  possession  from  you 
information  as  to  the  number  and  amount  of  drafts  which  you 
expect  will  be  presented  to  you  from  Europe  on  any  steamers 
arriving  to-day  or  subsequently.  They  would  particularly  like 
to  know  how  much  you  expect  on  each  steamer.  In  case  any 
of  these  have  already  been  financed  please  so  state  In  your  com- 
munication. 

131] 


THE   NEW   YORK   STOCK    EXCHANGE 

"The  Committee  would  also  like  to  have  you  tabulate  in 
your  reply,  so  far  as  you  can,  the  banks,  trust  companies  or 
bankers  from  whom  you  expect  drafts  to  be  presented. 

"This  communication  is  confidential  and  it  is  requested  that 
you  do  not  discuss  this  matter  with  any  one  outside  your  own 
firm.  Your  answer  is  expected  by  bearer,  in  order  that  the 
financing  of  these  drafts  may  be  facilitated." 

By  three  o'clock,  the  same  afternoon,  replies  had 
been  received  from  thirteen  houses  that  they  expected 
securities  on  the  Olympic  and  Mauretania,  and  had  also 
received  advices  of  other  securities  forwarded  but  did 
not  know  on  what  steamers;  the  drafts  to  be  presented 
they  said  would  be  approximately  for  four  and  one  half 
millions.  Replies  from  twelve  other  houses  stated  it  as 
a  possibility  but  not  a  certainty  that  securities  might 
reach  them  on  the  steamers  above  mentioned  to  the 
amount  of  about  four  millions;  and,  finally,  twelve  firms 
sent  replies  stating  that  they  either  expected  no  securi- 
ties or  had  made  the  necessary  arrangements  to  finance 
what  was  coming.  These  facts — so  far  below  the  esti- 
mate at  first  presented  to  the  Committee — came  as  a 
great  relief,  and  were  at  once  taken  before  the  Bank 
Clearing  House  Committee.  After  a  careful  discussion 
with  these  gentlemen  the  Committee  of  Five  again 
met  and  sent  the  following  communication  to  the  firms 
who  had  reported  that  securities  and  drafts  were  about 
to  be  tendered  to  them. 


"Members  of  the  Exchange  to  whom  foreign  drafts  are  pre- 
sented for  payment,  are  requested  to  confer  with  the  Com- 
mittee of  Five  at  9  A.M.  to-morrow,  Thursday,  the  6th  inst., 
in  the  Secretary's  office,  with  details  of  such  transactions  in 
hand,  when  efforts  will  be  made  to  facilitate  the  adjustment." 

[32] 


IN   THE    CRISIS   OF   1914 

The  next  morning  the  few  firms  who  had  drafts  to 
meet  on  that  day  were  provided  with  the  necessary 
loans  by  two  banks  and  a  trust  company  at  8  per  cent. 
The  amount  of  securities  due  from  Europe  was  un- 
doubtedly large,  but  the  great  bulk  of  it  had  not  been 
shipped  and  the  shipment  of  it  was  postponed  for  many 
weeks  afterward.  The  extraordinary  statement  that 
$40,000,000  or  $50,000,000  were  about  to  be  landed  in 
New  York  is  interesting  as  showing  the  hysterical  state 
of  mind  to  which  many  business  men  had  been  reduced 
at  that  time.  The  actual  amount  of  stocks  sold  to 
arrive,  against  which  borrowings  had  been  effected  in 
New  York,  was  finally  shown  to  amount  to  $20,000,000. 
That  this  amount  was  not  increased  at  an  embarrassing 
period  in  these  important  negotiations  was  due  in  large 
measure  to  the  action  of  the  Committee  in  calling 
together  the  various  foreign  arbitrage  houses,  and 
securing  from  them  an  agreement  to  cable  to  their  cor- 
respondents in  Europe  not  to  make  further  shipments 
of  securities,  because  borrowed  stocks  could  not  be  re- 
turned and  deliveries  effected.  This  as  it  turned  out 
was  an  important  step  in  the  right  direction. 

Owing  to  the  sudden  and  severe  pressure  of  business 
to  which  the  Committee  of  Five  was  subjected  almost 
from  the  moment  of  its  organization,  some  matters 
were  unavoidably  overlooked  which  should  have  had 
immediate  attention.  Conspicuous  among  these  was 
the  question  of  the  rate  of  interest  to  be  charged  upon 
open  contracts  which  the  action  of  the  Governing  Com- 
mittee had  suspended.  This  matter  was  not  reached 

[33] 


THE   NEW   YORK   STOCK    EXCHANGE 

until  the  meeting  of  August  4th,  when  the  following 
ruling  was  made: 

"The  Special  Committee  rules  that  interest  on  the  delivery 
at  the  rate  of  6  per  cent,  shall  accrue  from  August  5th  on  all 
unsettled  contracts  for  delivery  of  securities,  except  that  inter- 
est shall  cease  when  a  receiver  of  securities  gives  one  day's 
notice  to  a  deliverer  that  he  is  ready  to  receive  and  pay  for  same. 

"The  Special  Committee  further  rules  that  sales  of  bonds  on 
July  30th  carry  interest  at  the  rate  specified  in  the  bond  to 
July  31st,  and  that  between  July  31st  and  August  5th  they 
are  '  flat ' ;  interest  thereafter  to  be  6  per  cent,  on  the  amount  of 
money  involved,  subject  to  the  exemption  stated  in  the  previous 
ruling." 

In  view  of  the  fact  that  no  action  had  been  taken  up 
to  August  4th  and  that  a  number  of  private  settle- 
ments had  been  arranged  in  the  meantime  the  Com- 
mittee thought  it  wise  to  avoid  a  retroactive  ruling,  and 
imposed  the  6  per  cent,  rate  from  August  5th.  In- 
justice was  done,  in  some  cases,  by  permitting  a  lapse 
of  five  days  when  no  interest  charge  was  required,  but 
this  in  justice  was  cheerfully  borne  owing  to  the  unusual 
exigencies  of  the  situation. 

On  this  same  day  the  Committee  received  the  first 
communication  which  indicated  that  some  members  of 
the  Exchange  had  not  yet  appreciated  the  necessities 
and  dangers  of  the  situation.  This  came  in  the  form 
of  a  letter  from  the  Baltimore  Stock  Exchange  which 
contained  the  following  passage : — 

"A  representative  New  York  Stock  Exchange  house  has 
been  guilty  of  going  directly  to  one  of  the  Trust  Companies 
here,  and  made  offerings  of  bonds  dealt  in  on  both  your  Ex- 
change and  our  own,  at  a  large  concession." 

[34] 


IN   THE   CRISIS   OF   1914 

The  Committee  directed  the  Secretary  to  make  the 
following  reply: — 

"In  the  matter  of  your  letter  of  August  1,  1914,  I  am  in- 
structed by  the  Special  Committee  appointed  by  the  Governing 
Committee  on  July  31,  1914,  to  inform  you  that  in  the  opinion 
of  said  Committee  the  offering  down  of  securities  in  places  where 
money  is  loaned  on  securities  is  most  reprehensible,  and  that 
members  of  this  Exchange  ought  not  to  engage  therein.  If 
possible,  I  would  like  the  name  of  the  member  of  the  New  York 
Stock  Exchange  who  made  such  offer." 

It  may  be  urged  in  extenuation  of  the  act  of  the  Stock 
Exchange  house  that,  August  1st  being  only  one  day 
after  the  closing,  a  thorough  appreciation  of  the  gravity 
of  the  situation  had  not  yet  become  general. 

By  August  5th  the  work  of  the  Committee  had  as- 
sumed the  form  that  was  to  continue  unremittingly 
until  the  Exchange  reopened  four  and  one  half  months 
later.  A  constant  stream  of  communications  either  by 
letter  or  by  personal  appearance  filled  the  days  some- 
times from  nine  o'clock  in  the  morning  until  six  in  the 
afternoon.  The  communications  asked  advice  and 
made  suggestions  of  every  conceivable  kind,  but,  above 
all,  they  were  loaded  with  problems  and  difficult  situa- 
tions which  had  grown  out  of  the  breakdown  of  the 
financial  machinery  in  general. 

The  labors  of  the  Committee  in  striving  to  straighten 
out  this  formidable  tangle  of  business  affairs  led  to  their 
issuing  a  series  of  rulings,  which  were  binding  upon  all 
members  of  the  Exchange.  These  rulings  were  sent 
over  the  "Ticker"  whenever  they  were  passed,  but  on 

[35] 


THE   NEW   YORK   STOCK   EXCHANGE 

August  5th  it  was  decided  to  supplement  the  "Ticker" 
by  distributing  the  rulings  in  circular  form,  and  thus 
insure  the  possession  by  every  member  of  a  full  copy  of 
the  entire  number.  It  is  a  gratifying  fact,  both  from 
the  standpoint  of  the  Committee  and  of  the  Stock  Ex- 
change, that  no  one  of  the  very  numerous  rulings  was 
a  failure  or  had  to  be  rescinded,  and  that  they  were  all 
accepted  without  cavil  or  serious  criticism  by  the 
members.  In  the  relatively  few  cases  where  an  in- 
disposition to  live  up  to  these  rulings  was  brought  to  the 
attention  of  the  Committee,  an  appeal  from  them  to 
loyalty  and  good  judgment  never  failed  to  bring  a  re- 
calcitrant member  to  terms. 

On  this  day,  August  5th,  a  special  circular  was  sent 
out  to  answer  the  constant  inquiries  as  to  whether 
purchases  or  sales  of  securities  were  in  any  way  per- 
missible during  the  period  of  closing.  It  contained  the 
following : 

"When  the  Governing  Committee  ordered  the  Exchange 
closed  it  was  their  intention  that  all  dealings  in  securities  should 
cease,  pending  the  adjustment  of  the  financial  situation  and  the 
reopening  of  the  Exchange. 

"  It  is  possible  that  cases  may  occur  where  an  exception  would 
be  warranted  provided  such  dealings  were  for  the  benefit  of  the 
situation,  and  in  no  sense  of  a  speculative  character,  or  con- 
ducted in  public.  Any  member,  however,  taking  part  in  such 
transactions  must  have  in  mind,  his  loyalty  to  the  Exchange, 
whether  or  not  he  is  living  up  to  the  spirit  of  the  laws,  and  that 
he  is  not  committing  an  act  detrimental  to  the  public  welfare." 

On  August  7th  the  question  of  the  reopening  of  the 
Exchange  again  came  to  the  front.  A  letter  from 
Baltimore  was  received  urging  that  the  Exchange  re- 

[36] 


IN   THE   CRISIS   OF   1914 

open  for  dealings  in  bonds  only,  and  the  newspapers 
were  so  urgent  for  some  statement  on  the  subject  that  the 
Committee  authorized  the  following: 

"The  Special  Committee  of  Five  will  not  recommend  to  the 
Governing  Committee  the  reopening  of  the  Exchange  until  in 
their  judgment  the  financial  situation  warrants  it,  and  as  before 
stated,  ample  notice  will  be  given  of  the  proposed  opening." 

The  question  of  borrowed  and  loaned  stocks  came  up 
at  this  time  in  two  aspects,  one  the  interest  rate  to 
be  charged,  and  the  other  the  determination  of  the 
market  price  at  which  such  loans  should  stand.  With 
regard  to  the  former  the  Committee  ruled  on  August 
5th  that  "until  further  notice,  from  and  after  this  date, 
the  interest  rate  on  all  borrowed  and  loaned  stocks  shall 
be  6%."  In  the  latter  case  they  ruled  (August  10th) 
that  "borrowed  and  loaned  stocks  must  be  marked  to 
the  closing  prices  on  Thursday,  July  30th,  1914,  at  the 
request  of  either  party  to  the  loan." 

The  effect  of  this  second  ruling  was  to  establish  the 
policy  of  regarding  the  closing  prices  of  July  30th,  as  the 
market  for  securities,  so  that  all  loans,  whether  cash 
loans  or  stock  loans,  should  be  figured  at  this  level.  The 
making  of  any  prices  below  those  of  July  30th  was  to  be 
resisted  by  every  available  means,  and  the  money- 
lending  institutions  were  to  be  urged  to  cooperate  by 
recognizing  them  as  a  basis  for  exacting  margins.  As 
long  as  this  policy  could  be  successfully  carried  out  the 
danger  of  financial  collapse  would  be  averted. 

It  having  been  ruled  that  a  lender  of  stock,  by 
notifying  the  borrower  of  his  willingness  to  take  the 

[37] 


THE    NEW   YORK   STOCK   EXCHANGE 

stock  back,  could  stop  the  interest  charge  on  the  con- 
tract, a  considerable  demand  arose  for  new  stock  loans 
to  replace  those  in  which  this  privilege  had  been  ex- 
ercised. The  matter  of  facilitating  these  new  stock  loans 
was  taken  up  by  the  Stock  Exchange  Clearing  House, 
and  this  together  with  the  negotiations  for  voluntary 
settlement  of  back  contracts  now  brought  upon  the 
Clearing  House  Committee  that  great  volume  of  work 
which  increased  steadily  until  the  reopening  of  the  Ex- 
change. 

One  step  tending  to  increase  this  work  was  taken  on 
August  llth,  when  the  Committee  ruled  as  follows: 

"Whenever  a  leaner  of  stocks  gives  one  day's  notice  of  will- 
ingness to  have  the  same  returned  and  the  borrower  fails  to 
so  return,  the  interest  thereon  shall  cease.  The  Clearing  House 
of  the  Exchange  is  prepared  to  advise  and  assist  in  making  new 
stock  loans  and  inquiries  should  be  made  in  person  there." 

The  effect  of  this  ruling  was  to  create  a  borrowing 
demand  for  stocks  at  current  interest  rates  and  the 
Clearing  House  Committee  became  the  agency  through 
which  these  stock  loans  were  negotiated. 

A  further  ruling,  on  August  llth,  relative  to  the 
interest  rate  was  to  this  effect : 

"That  on  all  loans  of  stock  made  between  members  after  this 
date  the  rate  of  interest  is  subject  to  agreement  between  the 
parties  to  the  transactions,  but  should  not  exceed  6  per  cent." 

By  the  eleventh  of  August  the  question  of  the  growth 
of  an  outside  unregulated  market  began  to  force  itself 
upon  the  attention  of  the  Committee.  All  the  organ- 

[38] 


IN   THE   CRISIS   OF   19H 

ized  Stock  Exchanges  of  the  country  were  closed,  the 
auctioneers  had  loyally  agreed  to  abstain  from  making 
sales,  the  "Curb"  or  recognized  outside  market  was 
faithfully  cooperating  to  prevent  dealing,  the  un- 
affiliated  bankers  and  money  institutions  were  refraining 
even  from  the  private  sale  of  bonds  in  which  they  were 
interested,  so  that  for  a  brief  period  there  was  a  practi- 
cally complete  embargo  on  the  marketing  of  securities. 
Naturally  enough,  so  absolute  a  restraint  brought  on  a 
pressure  which  was  bound  to  force  a  vent  somewhere. 
At  first  an  occasional  group  of  mysterious  individuals 
were  seen  loitering  in  New  Street  behind  the  Exchange. 
A  member  of  the  Committee  of  Five,  who  was  prone  to 
see  the  humorous  side  of  things  even  in  those  dark  days, 
remarked  as  he  observed  them  late  one  afternoon  "the 
outside  market  seems  to  consist  of  four  boys  and  a  dog." 
Before  long,  however,  this  furtive  little  group 
developed  into  a  good  sized  crowd  of  men  who  assembled 
at  ten  o'clock  in  the  morning  and  continued  in  session 
until  three  in  the  afternoon.  At  first  they  met  im- 
mediately outside  of  the  Exchange,  but  later  they  took 
up  a  position  south  of  Exchange  Place  and  close  to  the 
office  of  the  Stock  Exchange  Clearing  House.  Their 
dealings  increased  gradually  as  time  went  on  and  never 
ceased  entirely  until  the  Exchange  reopened.  In  all 
probability  the  existence  of  this  market  was  a  safeguard 
as  long  as  its  dimensions  could  be  kept  restricted.  An 
absolute  prohibition  of  the  sale  of  securities,  if  con- 
tinued too  long,  might  have  brought  on  some  kind  of  an 
explosion  and  defeated  the  very  end  which  it  was  sought 
to  achieve. 

[39] 


THE   NEW   YORK   STOCK   EXCHANGE 

This  irregular  dealing,  as  long  as  it  remained  within 
narrow  limits  and  was  not  advertised  in  the  press, 
furnished  a  safety  valve  by  permitting  very  urgent 
liquidation.  It  was,  however,  continually  accompanied 
by  the  great  danger  that  it  might  grow  to  large  and 
threatening  proportions.  If,  in  consequence  of  the 
facilities  which  these  unattached  brokers  were  offering, 
responsible  interests  should  begin  to  take  part  in  and 
help  to  create  an  open  air  market,  the  very  disasters 
which  the  closed  Exchange  was  intended  to  prevent 
might  be  brought  about. 

It  was  necessary,  therefore,  that  the  Stock  Exchange 
authorities  should  do  all  in  their  power  to  hold  the 
development  of  this  market  in  check.  With  this  end  in 
view  they  not  only  prohibited  their  own  members  from 
resorting  to  it,  but  they  exerted  what  influence  they 
could  upon  others  not  to  lend  it  their  support.  The 
banks  and  money  lenders  were  urged  not  to  recognize 
the  declining  prices  which  were  established  there  as  a 
basis  for  margining  loans,  as  such  recognition  might 
tend  to  increase  the  dealings.  One  or  two  large  in- 
stitutions which,  at  first,  were  disposed  to  finance  the 
operations  conducted  in  the  Street  were  persuaded  to 
refrain  from  continuing  to  do  so,  and  the  press,  while 
giving  publicity  now  and  then  to  the  very  low  figures  at 
which  some  leading  stocks  were  quoted,  was  induced  to 
avoid  the  practice  of  regularly  tabulating  these  prices. 

It  having  become  apparent  that  some  members  of 
the  Exchange,  while  obeying  the  mandate  to  do  no 
trading  in  New  Street,  were  indirectly  helping  the 
practice  along  by  clearing  stocks  for  the  parties  who 

[40] 


IN   THE   CRISIS   OF   1914 

were  making  the  market  there,  the  Committee  ruled 
(August  llth)  "that  members  of  the  Exchange  are 
prohibited  from  furnishing  the  facilities  of  their  offices 
to  clear  transactions  made  by  non-members  while  the 
Exchange  remains  closed." 

The  final  outcome  was  that  the  New  Street  market 
did  more  good  than  harm.  It  relieved  the  situation  by 
facilitating  some  absolutely  necessary  liquidation,  and 
never  grew  to  such  proportions  as  to  precipitate  dis- 
aster, but  during  the  long  suspense  and  uncertainty  of 
the  closing  of  the  Exchange  it  was  a  constant  and  keen 
source  of  anxiety  to  the  Committee  of  Five. 

Toward  the  end  of  the  first  fortnight  after  the  closing 
of  the  Exchange,  the  communications  received  by  the 
Committee  made  it  plain  that  there  were  quite  a  large 
number  of  purchasers,  attracted  by  the  low  figures 
reached  in  the  last  day's  trading,  who  were  ready  and 
anxious  to  buy  securities  at  or  above  the  closing  prices. 
Obviously  purchases  of  this  kind  by  investors  who  hap- 
pened to  be  in  a  position  to  take  securities  out  of  the 
market,  promised  to  bring  relief  to  interests  whose 
position  was  critical  and  thus  to  fortify  the  general 
situation.  This  facility  could  not  be  extended  in  the 
form  of  a  general  permission  to  the  members  of  the  Ex- 
change to  make  transactions  privately  at  or  above  closing 
prices.  To  have  permitted  as  far  reaching  a  relaxation 
of  restraint  as  this  in  so  critical  a  time  would  have  en- 
tailed too  great  a  risk.  If  any  one  of  the  eleven  hundred 
members  had  proved  disloyal  in  the  exercise  of  so  dan- 
gerous a  privilege  and  privately  negotiated  sales  at  prices 

[41] 


THE   NEW    YORK   STOCK   EXCHANGE 

below  those  of  the  closing,  the  whole  plan  of  sustaining 
values  might  have  been  jeopardized. 

After  considering  the  matter  very  carefully  the  Com- 
mittee concluded  that  the  machinery  and  clerical  force 
of  the  Stock  Exchange  Clearing  House  could  be  advan- 
tageously used  to  supervise  and  control  transactions  of 
this  character,  and,  on  August  12th,  they  issued  the 
following  ruling: 


"Members  of  the  Exchange  desiring  to  buy  securities  for 
cash  may  send  a  list  of  same  to  the  Committee  on  Clearing 
House,  55  New  Street,  giving  the  amounts  of  securities  wanted 
and  the  prices  they  are  willing  to  pay. 

"No  offer  to  buy  at  less  than  the  closing  prices  of  Thursday, 
July  30,  1914,  will  be  considered. 

"  Members  of  the  Exchange  desiring  to  sell  securities,  but  only 
in  order  to  relieve  the  necessities  of  themselves  or  their  cus- 
tomers, may  send  a  list  of  same  to  the  Committee  on  Clearing 
House,  giving  the  amounts  of  securities  for  sale. 

"No  prices  less  than  the  closing  prices  of  Thursday,  July  30th, 
1914,  will  be  considered." 


Thus  was  established  a  market  in  the  Stock  Exchange 
Clearing  House  which  was  kept  in  operation  until  the 
complete  reopening  of  the  Exchange.  Immense  labor 
and  difficulty  were  brought  upon  the  Clearing  House 
Committee  in  order  to  handle  and  supervise  this  un- 
usual method  of  trading,  and  the  extraordinary  success 
with  which  it  was  carried  through  has  entitled  them  to 
the  lasting  gratitude  of  their  fellow  members.  The 
business  was  conducted  by  having  a  large  clerical  force 
tabulate  the  orders  received  and  bring  purchasers  and 
sellers  together  who  were  willing  to  trade  in  similar 
amounts  and  at  similar  prices.  In  order  to  consummate 

[42] 


IN   THE   CRISIS   OF    1914 

a  trade  the  Clearing  House  would  notify  both  parties, 
leaving  it  to  them  to  carry  out  the  delivery  and  pay- 
ment, and  requiring  them  to  inform  the  Clearing  House 
when  the  transaction  had  been  completed. 

The  first  effect  of  furnishing  this  means  for  establish- 
ing a  restricted  market  was  very  encouraging.  A  very 
considerable  amount  of  business  began  at  once  to  be 
entered  into.  Many  people  with  ready  money,  who 
felt  that  securities  had  fallen  to  bargain  prices,  appeared 
as  purchasers  and  relieved  the  necessities  of  those  who 
had  been  embarrassed  by  the  war  crisis.  A  little  later, 
however,  when  the  progress  of  the  war  took  on  a  more 
discouraging  aspect,  this  "Clearing  House  Market" 
fell  to  the  arbitrary  minimum  of  the  closing  prices 
with  a  large  excess  of  selling  as  compared  to  buying 
orders,  and  the  "New  Street  Market"  grew  in  propor- 
tion. During  the  darkest  days  of  depression  the  prices 
of  a  few  leading  stocks  such  as  U.  S.  Steel  and  Amal- 
gamated Copper  dropped  in  the  Street  ten  points  or 
more  below  their  July  30th  closings,  and  business  in 
the  Clearing  House  almost  ceased,  but  in  the  later 
Autumn,  when  the  rapid  rise  in  the  volume  of  American 
exports  began  to  foreshadow  a  readjustment  in  foreign 
exchange,  the  New  Street  prices  rose  again  to  the  Clear- 
ing House  level  and  a  relatively  small  business  in  the 
"outlaw"  market  was  transformed  into  a  relatively 
large  business  conducted  under  the  supervision  of  the 
Exchange. 

It  is  an  interesting  detail,  worth  mentioning,  that 
the  ruling  of  the  Committee  quoted  above,  which  estab- 

[43] 


THE   NEW   YORK   STOCK   EXCHANGE 

lished  a  market  in  the  Clearing  House,  used  the  per- 
missive word  "may"  in  stating  that  orders  to  buy  and 
sell  might  be  sent  to  that  institution.  This  was  soon 
taken  advantage  of  by  a  few  individuals  who  proceeded 
to  conduct  private  transactions  among  themselves. 
Their  excuse  was  that  if  transactions  were  merely  per- 
mitted in  the  Clearing  House  it  became  optional  as  to 
whether  they  should  take  place  there  or  elsewhere. 
Within  a  few  days  thereafter  the  Committee  amended 
the  ruling  by  substituting  the  word  "must"  for  the 
word  "may."  The  great  responsibility  attached  to 
promulgating  rulings,  which  were  to  be  the  law  during 
this  critical  period,  is  made  more  apparent  when  it  is 
realized  that  the  ill  considered  use  of  a  single  word  might 
bring  on  unforeseen  and  perhaps  dangerous  conse- 
quences. 

During  the  month  of  August  a  constantly  increasing 
pressure  from  every  conceivable  direction  was  exerted 
to  break  down  the  dam  with  which  the  Committee  was 
striving  to  hold  back  the  natural  flow  of  dealings  in 
securities.  By  letter  and  by  personal  appearance  before 
the  Committee  individuals,  in  and  out  of  the  Exchange, 
strove  to  induce  them  to  countenance  transactions  at 
prices  below  the  arbitrary  level  of  the  closing.  In 
addition  to  this  agitation  among  individuals  and  firms, 
restlessness  began  to  show  itself  in  some  of  the  other 
Exchanges.  At  one  time  the  Stock  Exchange  of  a  great 
neighboring  city,  which  had  permitted  restricted  deal- 
ings exactly  similar  to  those  carried  on  in  New  York, 
wished  to  have  those  dealings  regularly  quoted  in  the 
newspapers;  at  another  time  a  movement  developed 

[44] 


IN   THE    CRISIS   OF   1914 

on  the  Consolidated  Stock  Exchange  to  establish  some 
kind  of  restricted  public  dealing  on  their  floor.  The 
Committee  of  Five  were  obliged  to  labor  hard  and  as- 
siduously to  hold  this  pressure  back  and  keep  the  dam 
intact,  and  its  efforts  were  ably  and  loyally  seconded 
by  the  Committee  of  the  Bank  Clearing  House  whose 
great  influence  was  unremittingly  exerted  to  prevent 
the  danger  of  premature  action  of  any  kind. 

On  September  1st  the  Clearing  House  banks  were 
anxious  to  determine  what  was  the  amount,  measured 
in  money,  of  securities  sold  in  New  York  by  Europe 
and  not  yet  received.  The  object  of  obtaining  this 
information  was  to  know  what  demand  would  be  made 
upon  the  loan  market  if,  at  any  time,  these  securities 
should  be  shipped.  At  the  suggestions  of  the  bankers 
the  Committee  of  Five  summoned  before  them  repre- 
sentatives of  all  the  houses  doing  a  foreign  business  and 
requested  them  to  send  answers,  as  promptly  as  pos- 
sible, to  the  following  two  questions : 

First:  "Amount  due  Europe  for  securities  received  to  date 
and  not  yet  paid." 

Second:  "Amount  due  Europe  for  securities  already  sold 
but  not  received  from  Europe." 

On  the  following  morning  answers  were  handed  in 
showing  that  the  amount  received  and  not  yet  paid  for 
was  $699,576.11,  and  that  the  amount  due  Europe  on 
securities  sold  but  not  yet  received  was  $18,236,614.15. 
The  rapidity  and  accuracy  with  which  this  important 
information  was  obtained,  without  any  publicity  or 
disturbance  of  confidence,  is  interesting  as  showing  the 

[45] 


THE   NEW   YORK   STOCK    EXCHANGE 

efficiency  of  the  intimate  cooperation  between  the  banks 
and  the  Stock  Exchange. 

Among  the  many  agencies  for  dealing  in  securities, 
whose  activities  were  suddenly  cut  off  on  July  31st,  the 
first  in  importance  next  to  the  Stock  Exchanges  them- 
selves were  the  so-called  bond  houses.  These  firms, 
which  included  in  their  number  many  prominent  pri- 
vate bankers,  were  dealers  on  a  great  scale  in  invest- 
ment bonds,  and  when  the  thunderbolt  of  war  struck 
they  were  carrying  large  lines  of  those  bonds  on  bor- 
rowed money  which,  in  the  ordinary  course  of  events, 
would  have  been  placed  among  their  numerous  clients. 
When  the  crisis  of  early  August  had  developed,  all  these 
houses  (some  of  them  not  being  members  of  the  Stock 
Exchange)  loyally  cooperated  in  closing  up  the  market, 
and  abstained  from  negotiating  their  securities  even  in 
the  most  private  manner.  By  the  middle  of  August, 
however,  a  number  of  them  began  to  show  decided  rest- 
lessness over  the  embargo  upon  their  business.  The 
cutting  off  of  their  accustomed  income,  while  expenses 
continued  as  usual,  was  not  what  influenced  them,  for 
this  hardship  was  shared  by  all  Wall  Street,  but  the 
enforced  carrying  of  securities  in  bank  loans  at  so  crit- 
ical a  time  when  they  felt  that  these  securities  might 
be  disposed  of  became  a  grievance. 

It  was  urged  by  many  of  them  that  the  careful  plac- 
ing of  these  securities  would  be  a  great  aid  to  the  situa- 
tion because  every  investor  who  made  a  purchase 
would  facilitate  the  liquidation  of  their  loans,  ease  the 
strain  on  the  money  market,  and  diminish  the  volume 

]46] 


IN   THE    CRISIS   OF    1914 

of  securities  for  sale.  There  was  undoubtedly  much 
to  be  said  in  favor  of  this  view  when  looked  at  from  the 
standpoint  of  the  effect  upon  the  bond  houses  them- 
selves or  upon  the  loan  market,  but  there  was  another 
aspect  of  the  question  which  was  less  reassuring.  If 
these  houses  started,  at  this  terribly  critical  time,  to 
place  their  securities  among  their  clients  at  declining 
prices,  and  if  these  prices  became  known,  which  they 
certainly  would,  no  one  could  foretell  what  the  con- 
sequences might  be.  Many  large  institutions,  such  as 
Insurance  Companies  and  Savings  Banks,  had  funds 
invested  in  bonds,  and  many  money  lenders  held  loans 
upon  bonds  as  security;  what  would  be  the  effect  upon 
these  interests  if  a  declining  market  even  in  unlisted 
bonds  should  be  publicly  quoted? 

Influenced  by  this  grave  uncertainty  the  Committee 
of  Five  resisted  the  pressure  brought  upon  them  by 
certain  representatives  of  the  bond  dealers  who  raised 
this  question  first  on  the  nineteenth  of  August.  Several 
of  these  gentlemen  represented  important  firms  and 
institutions  which  were  not  members  of  the  Exchange, 
and  their  freedom  from  any  obligation  to  be  controlled 
by  the  Committee  created  a  situation  which  threatened 
to  become  strained.  In  all  cases  of  this  kind,  where  an 
independent  outsider  and  the  Committee  could  not 
come  to  an  understanding,  the  practice  had  become 
established  of  appealing  to  the  Clearing  House  Bankers 
to  act  as  a  court  of  last  resort.  The  banks,  with  their 
power  to  call  loans,  exerted  an  influence  which  could 
reach  every  nook  and  corner  of  the  business  world,  and, 
at  the  same  time,  their  immense  facilities  for  feeling 

[47] 


THE   NEW   YORK   STOCK   EXCHANGE 

the  financial  pulse  made  them  the  best  judges  of  what 
risks  it  was  as  yet  safe  to  take.  A  series  of  meetings 
consequently  took  place  between  the  Bank  Clearing 
House  Committee,  the  representatives  of  the  bond 
houses,  and  the  Committee  of  Five.  At  the  first  of  these 
meetings  the  bank  Presidents  leaned  very  decidedly 
to  the  views  of  the  Stock  Exchange,  and  it  was  decided 
to  postpone  any  consideration  of  a  departure  from  the 
status  quo  for  at  least  a  fortnight. 

The  general  situation  remaining  very  critical  all 
through  August,  no  further  steps  were  taken  until 
September  8th.  By  that  date  a  new  factor  had  intruded 
itself  into  the  situation.  Certain  corporate  obligations 
were  about  to  come  due  and  the  refunding  of  these 
obligations,  whether  in  fresh  issues  of  bonds  or  in  short 
term  notes,  was  going  to  make  it  necessary  to  withdraw 
the  prohibition  against  placing  investment  securities 
upon  the  market.  When  this  necessity  became  clear  it 
was  decided  that  some  strict  supervision  and  safeguard- 
ing of  the  sale  of  bonds  and  notes  was  necessary  and  the 
so-called  "  Committee  of  Seven,"  appointed  by  the  bond 
dealers,  were  requested  to  formulate  a  plan  for  this  pur- 
pose. This  Committee  of  Seven  consisted  of  members  of 
the  firms  of :  Brown  Brothers  &  Co. ;  Guaranty  Trust  Co. ; 
Harris,  Forbes  &  Co.;  Kissel,  Kinnicutt  &  Co.;  Wm.  A. 
Read&Co. ;  Remick,Hodges  &  Co.,  and  White,  Weld  &  Co. 

On  September  9th,  this  Committee  issued  the 
following  notice  to  bond  dealers: 


"Your  Committee  is  pleased  to  report  that  New  York  City's 
financial  needs  have  been  taken  care  of  satisfactorily,  thereby 

[48] 


IN   THE   CRISIS   OF   1914 

considerably  clearing  the  foreign  exchange  situation  which 
existed  when  our  communication  of  September  3d  was  sent  out. 

"The  Committee  is  therefore  of  the  opinion  that  the  placing  of 
securities  owned  by  dealers  with  their  private  customers  should 
be  approved  where  the  securities  can  be  sold  without  disturbing 
the  collateral  loan  situation  and  your  Committee  will  be  glad 
to  continue  to  advise  whenever  such  opportunities  arise.  Any- 
thing tending  toward  public  quotations  or  the  creating  of  the 
impression  of  an  active  or  even  semi-active  market  would  un- 
questionably seriously  disturb  the  loan  situation. 

"Transactions  with  bargain  hunters  should  not  be  coun- 
tenanced and  your  Committee  will  not  approve  the  closing  of 
transactions  coming  under  this  head.  Prices  should  conform 
to  the  spirit  which  has  prevailed  during  the  past  few  weeks. 

"Recognizing  the  support  which  banks  and  other  lenders  of 
money  have  given  to  dealers  in  securities,  it  should  be  the  policy 
of  such  dealers  when  securities  are  sold  to  apply  the  proceeds 
toward  the  liquidation  of  loans. 

"The  Committee  has  considered  questions  of  maturing 
obligations  of  cities  and  corporations  and  believes  that  the 
present  situation  does  not  warrant  any  attempt  to  issue  long 
time  bonds,  but  that  such  refunding  should  be  accomplished 
through  short  time  financing. 

"The  Clearing  House  Committee  and  the  Stock  Exchange 
Committee  have  expressed  appreciation  of  the  cooperation 
shown  by  the  dealers  in  listed  and  unlisted  securities  and  if  all 
will  endeavor  to  live  up  to  the  spirit  of  the  policy  thus  far  ad- 
hered to  we  are  sure  there  will  be  no  cause  for  criticisms  on  the 
part  of  the  banks  or  the  Stock  Exchange  Committee. 

"Your  Committee  of  Seven  will  continue  to  meet  in  the 
Directors'  Room  of  the  Chase  National  Bank  daily,  from  11 
A.M.  to  12  M.,  for  advice  on  any  cases  where  we  can  be  of  any 
assistance  whatever." 


The  practical  plan  adopted  was  as  follows: 
Bond  houses  having  securities  of  their  own  for  sale 
could  place  them  with  their  clients  at  prices  approved  by 
the  Committee  of  Seven.  All  purchasers  and  sellers  of 
bonds,  acting  as  brokers  only,  were  required  to  file  their 
orders  with  the  Committee  of  Seven  when  dealing  in  un- 

[49] 


THE   NEW   YORK   STOCK   EXCHANGE 

listed  bonds,  and  with  the  Stock  Exchange  Clearing 
House  when  dealing  in  listed  bonds,  and  these  two 
agencies  were  empowered  to  determine  minimum  prices 
below  which  sales  could  not  be  made. 

It  will  be  seen  that  a  very  important  step  in  the 
direction  of  relaxation  of  restraints  was  here  taken. 
Not  only  was  the  prohibition  of  all  dealings  which  had 
marked  the  beginning  of  the  crisis  withdrawn,  but 
prices  below  the  closing  sales  of  July  30th  were  to  be 
permitted  subject  to  the  supervision  of  a  Committee. 

As  has  already  been  stated,  the  Committee  on  Clear- 
ing House  had  their  hands  full  from  the  time  the  Ex- 
change closed,  first  with  bringing  about  the  settlement 
of  the  contracts  of  July  30th,  and  secondly  with  carrying 
on  the  business  of  making  new  contracts  for  members 
wishing  to  trade  in  securities  at  or  above  the  closing 
prices.  It  was  impossible,  therefore,  for  the  members 
of  that  Committee  to  give  personal  attention  to  the 
difficult  problem  of  determining  the  prices  below  which 
listed  bonds  should  not  be  sold.  To  meet  this  difficulty 
it  was  decided  that  a  small  additional  Committee  of  men 
known  to  be  thoroughly  familiar  with  the  bond  business 
should  be  organized,  and  that  it  should  be  their  duty  to 
control  the  liquidation  of  listed  bonds. 

The  carrying  out  of  this  plan  at  first  met  with  a 
technical  obstacle.  The  power  to  appoint  a  Special 
Committee  rested  exclusively  with  the  Governing 
Committee  of  the  Exchange ;  in  order  to  secure  action  a 
special  meeting  of  that  body  would  have  to  be  called; 
in  the  early  weeks  of  September  sentiment  was  still  in  so 

[50] 


IN   THE   CRISIS   OF    1914 

critical  a  state  and  every  act  of  the  Exchange  was  so 
keenly  watched  that  it  was  feared  the  holding  of  an 
extraordinary  meeting  might  start  rumors  and  cause 
alarm.  In  view  of  these  considerations  the  Committee 
of  Five  hit  upon  the  makeshift  of  inviting  three  members 
of  the  Governing  Committee,  who  possessed  the  desired 
qualifications,  to  volunteer  their  services  as  an  advisory 
body  in  the  matter  of  fixing  prices  for  listed  bonds.  The 
three  members  selected  were  Messrs.  C.  M.  Newcombe, 
Vice  President  of  the  Exchange,  W.  H.  Remick,  and  W. 
D.  Wood. 

On  the  19th  of  September  these  three  gentlemen 
cheerfully  undertook  the  difficult  and  onerous  task 
urged  upon  them,  and  for  three  months  they  abandoned 
their  own  private  interests  and  devoted  their  entire 
time  to  it.  Owing  to  the  intelligent  and  judicious 
manner  in  which  they  handled  the  delicate  problem  of 
conducting  a  liquidation  in  listed  bonds  that  should  at 
once  be  effective  and  yet  not  lead  to  demoralization,  they 
placed  themselves  among  the  foremost  of  those  to  whom 
the  financial  community  owes  a  debt  of  gratitude. 

By  the  latter  part  of  September  methods,  as  described 
above,  had  been  found  for  facilitating  a  restricted 
liquidation  of  listed  stocks,  and  of  listed  and  unlisted 
bonds.  Nothing,  however,  had  been  done  to  make  an 
outlet  for  unlisted  stocks.  The  "Curb"  market  and 
certain  prominent  unaffiliated  houses  dealing  in  these 
securities  had  loyally  played  their  part  in  suspending 
dealings,  but  symptoms  began  to  show  themselves  of 
possible  revolt,  and  the  Committee  of  Five  set  to  work 

[51] 


THE    NEW   YORK    STOCK   EXCHANGE 

to  find  a  safety  valve  for  this  department  also.  The 
device  of  a  supervisory  Committee  had  proven  so 
efficacious  in  other  directions,  that  it  was  naturally 
turned  to  in  this  instance.  The  circumstances  differed, 
however,  in  one  particular.  The  bond  dealers  had 
spontaneously  created  for  themselves  the  very  efficient 
Committee  of  Seven  who  took  their  affairs  in  hand,  but 
the  interests  involved  in  unlisted  stocks  did  not  show 
the  same  solidarity,  and  it  was  necessary  for  the  Com- 
mittee of  Five  to  take  a  hand  in  initiating  action. 

With  this  end  in  view  they  consulted  Mr.  Herbert  B. 
Smithers,  of  the  firm  of  F.  S.  Smithers  &  Co.,  concerning 
the  feasibility  of  having  a  committee  formed  to  pass 
upon  and  control  a  resumption  of  dealings  in  unlisted 
stocks.  Mr.  Smithers  was  singled  out  for  the  reason 
that  he  was  a  member  of  the  Stock  Exchange  whose 
firm  was  among  the  most  prominent  dealers  in  these 
securities,  and  the  prompt  and  energetic  way  in  which 
he  undertook  the  task  proposed  to  him  soon  convinced 
the  Committee  that  they  had  not  erred  in  resorting  to 
him.  He  set  about  organizing  a  Committee  at  once  and 
on  September  24th  he  appeared  before  the  Committee  of 
Five  accompanied  by  Messrs.  A.  C.  Gwynne,  F.  H. 
Hatch,  A.  H.  Lockett,  and  E.  K.  McCormick.  These 
gentlemen  announced  that  they  were  willing  to  act, 
with  Mr.  Smithers  as  their  Chairman,  and  a  plan  for 
the  control  of  the  market  in  unlisted  stocks  was  agreed 
upon. 

In  order  to  clothe  this  Committee  (which  included  two 
Stock  Exchange  members,  two  representatives  of 
prominent  outside  dealers,  and  the  President  of  the 

[52] 


IN    THE   CRISIS   OF    1914 

Curb  Association)  with  authority,  the  Committee  of 
Five  directed  members  of  the  Exchange  to  submit  pro- 
posed dealings  in  unlisted  stocks  to  them  and  abide  by 
their  rulings.  The  Stock  Exchange  Committee  could, 
of  course,  only  control  its  own  members,  but  it  being  a 
fact  that  a  very  large  part  of  the  unlisted  business 
emanated  from  Stock  Exchange  houses,  it  was  probable 
that  their  action  would  determine  that  of  unattached 
dealers.  This  expectation  was,  in  the  main,  borne  out, 
and  business  in  unlisted  stocks  began  to  be  carried  on 
actively  under  the  jurisdiction  above  described. 

It  is  necessary  to  record,  however,  in  the  interest  of 
preserving  a  correct  picture  of  the  happenings  of  this 
momentous  time,  that  the  smooth  and  gratifying 
operation  of  the  various  other  Committees,  which  sprang 
into  being  to  handle  the  numerous  problems  presented, 
was  not  entirely  repeated  in  this  case. 

The  conditions  surrounding  unlisted  stocks  seemed 
on  the  surface  to  be  identical  with  those  pertaining  to  un- 
listed bonds.  In  both  cases  a  business  that  was  partly 
in  the  hands  of  Stock  Exchange  members  and  partly  in 
those  of  outside  concerns  was  to  be  presided  over  by  a 
mixed  Committee  representing  both  interests.  In  the 
case  of  the  Bond  Committee  of  Seven  this  supervision 
was  accepted  and  cheerfully  lived  up  to  by  practically 
all  concerned.  A  different  situation  soon  developed  in 
unlisted  stocks.  Almost  immediately  certain  individuals 
in  the  business  began  to  assert  that  the  unlisted  Com- 
mittee was  a  self  appointed  body  which  did  not  represent 
the  people  most  concerned,  and  that  being  themselves 
dealers  in  the  properties  the  trades  in  which  were  under 

[53] 


THE    NEW   YORK   STOCK   EXCHANGE 

their  supervision,  these  gentlemen  could  not  be  trusted 
to  act  fairly  in  making  their  rulings.  After  much  pre- 
liminary growling  which  vented  itself  in  interviews 
with  the  Committee  of  Five,  this  antagonistic  senti- 
ment crystallized  into  a  written  protest. 

On  October  1st,  the  following  statement  was  pre- 
sented to  the  Committee  of  Five. 


"GENTLEMEN: 

"Owing  to  a  general  feeling  of  dissatisfaction  amongst  members 
and  non-members  of  the  New  York  Stock  Exchange  resulting 
from  the  formation  of  a  Committee  of  Five  to  supervise  dealings 
in  Unlisted  Securities,  we,  the  undersigned,  desire  to  suggest  the 
following  recommendations  for  your  consideration: 

"First:  The  personnel  of  the  Committee  be  changed  to  the 
effect  that  same  be  composed  of  parties  not  identified  as  dealers. 
"  Second:  That  in  stocks  which  have  an  open  or  active  market, 
transactions  may  be  made  without  restriction  or  necessity  of 
report  to  the  Committee,  when  at  or  above  the  closing  prices  of 
July  30,  1914. 

"Third:  That  where  securities  have  not  had  an  active  or 
open  market  the  bid  prices  as  published  in  the  Chronicle  of 
August  1st,  be  accepted  as  the  closing  prices. 

"Fourth:  That  in  the  case  of  securities  where  the  Committee 
may  deem  it  possible  to  trade  at  prices  below  those  prevailing 
on  July  30th,  they  establish  minimum  prices  good  for  as  long  a 
time  as  the  Committee  deems  practical,  and  that  a  list  of  these 
prices  be  furnished  to  those  making  application  for  same." 

We  think  that  if  the  above  recommendations  are  put  into 
force,  it  will  do  away  with  the  criticism  which  has  been  made  as 
to  the  Committee  as  at  present  constituted,  and  by  so  doing  in- 
crease the  efficiency  of  this  Committee  on  Unlisted  Securities, 
by  securing  thorough  and  hearty  cooperation  on  the  part  of 
all  brokers  and  dealers  in  these  issues." 


In  reply  to  this  appeal  the  Committee  of  Five  pointed 
out  that  whenever,  in  other  cases,  the  action  of  a  Com- 
mittee had  been  invoked  to  supervise  the  transaction 

[54] 


IN    THE   CRISIS   OF   1914 

of  business,  confidence  in  the  integrity  of  that  Commit- 
tee had  been  general  and  unquestioned.  The  Com- 
mittee of  Seven,  the  Committee  on  Clearing  House,  the 
Committee  of  Three,  and  the  Committee  of  Five  them- 
selves had  all  been  vested  with  dictatorial  powers  over 
a  business  in  which  their  members  were  personally 
engaged.  In  order  to  render  trading  in  unlisted  stocks 
a  possibility,  at  the  time,  similar  powers  must  be  granted 
and  similar  confidence  must  be  given  to  some  one.  The 
Unlisted  Stock  Committee  were  not  self-appointed  be- 
cause they  came  into  being  at  the  instigation  and  sug- 
gestion of  the  Committee  of  Five,  and  to  disband  them 
after  they  had  started  upon  their  work,  substituting 
other  individuals  in  their  places,  would  merely  stimu- 
late fresh  antagonism  that  might  wreck  the  entire  pro- 
ject. The  fact  that  these  men  were  dealers  in  outside 
properties  especially  fitted  them  to  pass  upon  the  reason- 
ableness of  the  prices  that  were  to  be  made,  and  there 
was  no  more  reason  to  question  their  integrity  of  pur- 
pose than  there  would  be  to  doubt  that  of  any  individ- 
uals who  might  take  their  place. 

A  firm  stand  was  thus  taken  in  defence  of  this  new 
Committee,  and  they  succeeded  in  carrying  on  their 
work  successfully  up  to  the  time  when  the  amelioration 
of  conditions  enabled  them  to  disband.  It  must  be 
regretfully  recorded,  however,  that  the  petty  jealousy 
and  distrust  which  had  appeared  in  connection  with 
this  episode  continued  to  show  themselves  in  a  desultory 
way  until  the  end.  A  few  individuals  threw  what  im- 
pediments they  could  in  the  path  of  this  Committee,  and 
thereby  furnished  the  only  exception  to  the  wonderful 

[55] 


THE   NEW   YORK    STOCK   EXCHANGE 

exhibition  of  loyalty  and  self  eff acement  that  manifested 
itself  in  every  other  department. 

When  the  Exchange  suddenly  closed  its  doors,  an 
immense  number  of  people,  consisting  of  employees  of 
the  Exchange  itself  and  the  clerical  forces  of  all  the 
many  brokerage  houses,  were  rendered  idle.  As  soon 
as  it  became  evident  that  the  suspension  of  business 
was  going  to  be  indefinitely  prolonged,  the  grave  ques- 
tion arose  as  to  the  extent  to  which  these  people  would 
be  thrown  out  of  employment.  The  Stock  Exchange 
at  once  set  the  generous  example  of  deciding  to  retain 
its  entire  force  without  reduction  of  wages,  and  this 
decision  was  carried  through  for  the  entire  four  and 
one  half  months  of  suspension.  A  more  difficult  pro- 
blem, however,  confronted  the  brokerage  houses.  Many 
of  these  firms  had  very  heavy  office  rents  and  fixed 
charges  of  various  kinds;  their  business  had  been  show- 
ing meager  profits  and  even  losses  for  some  years  and, 
the  length  of  the  period  of  closing  being  impossible  to 
forecast,  they  did  not  dare  to  undertake  burdens  that 
might  get  them  into  difficulties.  The  result  was  that 
a  few  strong  houses,  with  philanthropic  proclivities, 
carried  their  clerical  forces  through  on  full  pay,  but  the 
majority  were  obliged  to  cut  them  down  in  various 
ways.  In  some  cases  the  full  force  was  retained  on 
greatly  reduced  salaries,  in  others  salaries  were  reduced 
and  part  of  the  force  discharged,  and  the  net  result  was 
that  a  great  number  of  unfortunates  were  either  thrown 
into  unemployment  altogether  or  placed  in  very  straight- 
ened circumstances. 

[56] 


IN    THE    CRISIS    OF    1914 

It  is  an  interesting  fact,  bearing  on  the  popular  super- 
stition that  Wall  Street  is  peopled  by  unprincipled 
worshippers  of  the  dollar  who  are  incapable  of  those 
finer  qualities  of  character  which  are  confined  exclu- 
sively to  other  walks  of  life,  that  there  is  no  region  in 
which  a  quicker  response  to  the  call  of  the  needy  can 
be  obtained  than  on  the  floor  of  the  Stock  Exchange. 
Even  though  the  brokers  were  facing  an  indefinite 
period  of  starvation  themselves,  with  expenses  running 
on  one  side  and  receipts  cut  off  on  the  other,  the  mo- 
ment it  became  clear  that  severe  suffering  had  come 
upon  the  clerical  forces  of  the  Street  a  movement  was 
at  once  set  on  foot  to  start  measures  of  relief  and  assist- 
ance. Perhaps  the  best  way  to  convey  an  idea  of  the 
form  which  this  assistance  took  is  to  quote  from  a  re- 
port on  the  subject  made  by  one  of  those  who  gener- 
ously gave  his  time  to  the  work.  What  follows  is  in 
his  own  words. 

"A  phase  of  the  extraordinary  and  unprecedented 
conditions  prevailing  in  the  Financial  District,  com- 
monly known  as  'Wall  Street,'  was  the  necessity  for 
cutting  down  office  expenses,  and  though  many  firms 
carried  their  salary  list  intact,  a  considerable  number 
laid  off  from  one  half  to  two  thirds  of  their  employees, 
and  subsequent  events  developed  the  fact  that  some  of 
them  discharged  practically  their  entire  force. 

"About  the  middle  of  September,  the  distress  said  to 
exist  among  the  Wall  Street  employees,  who  had  lost 
their  positions  as  a  result  of  the  war  in  Europe,  prompted 
Mr.  C.  E.  Knoblauch  to  suggest  that  some  concerted 
action  be  taken  to  meet  this  emergency,  if  only  as  a 

[57] 


THE   NEW   YORK    STOCK   EXCHANGE 

temporary  expedient.  A  number  of  informal  discus- 
sions of  the  subject  with  fellow  members  of  the  Ex- 
change, and  further  evidences  of  the  existence  of  a  wider 
field  for  the  work  than  was  at  first  realized,  culminated 
in  a  call  for  a  meeting  in  the  office  of  Tefft  &  Company 
and  immediate  organization. 

"Officers  having  been  duly  elected,  the  personnel  of 
the  Committee  was  declared  to  be  as  follows: — James 

B.  Mabon,  W.  H.  Remick,  Graham  F.  Blandy,  R.  H. 
Thomas,  W.  W.  Price,  G.  V.  Hollins,  C.  E.  Knoblauch, 

C.  J.  Housman,  G.  M.  Sidenberg,  Townsend  Lawrence, 
T.  F.  Wilcox,  Erastus  T.  Tefft,  Chairman;  Charles  L. 
Burnham,  Secretary;  Edward  Roesler,  Treasurer. 

"The  title  of  the  Committee  was  formally  agreed 
upon  as  'The  Wall  Street  Employees'  Relief  Commit- 
tee.' 

"Through  the  courtesy  of  Mr.  Clarence  Mackey,  the 
offer  of  a  suite  of  rooms  on  the  second  floor  of  the  Com- 
mercial Cable  Building,  20  Broad  Street,  for  the  use  of 
the  Committee,  at  no  charge  for  rent,  was  gratefully 
accepted,  and  arrangements  for  occupation  were  made 
at  once.  Mr.  Oswald  Villard,  through  a  member  of 
the  Committee,  evidenced  his  interest  by  offering 
temporary  use  of  rooms  in  the  Evening  Post  Building 
for  the  purposes  of  the  Committee. 

"It  was  determined  that  the  principal  object  of  the 
Committee  would  be  to  act  as  an  Employment  Bureau, 
to  find  positions  for  unemployed  and  to  relieve  distress 
where  it  was  found  to  exist.  It  was  understood  and 
arranged  for,  that  any  Wall  Street  employee  who  had 
lost  a  position  as  a  result  of  the  war  was  eligible,  and 

[58] 


IN   THE    CRISIS   OP   1914 

that  no  fees  whatever  be  charged.  A  circular  letter 
was  sent  to  Stock  Exchange  members  and  firms  ap- 
pealing for  subscriptions,  and  the  matter  of  selection 
of  a  depository  of  the  funds  was  referred  to  the  Trea- 
surer with  power.  The  work  of  receiving  and  recording 
registration  blanks  commenced  with  a  rush,  over  one 
hundred  and  fifty  were  filed  the  first  day,  and  in  a  few 
weeks  they  numbered  over  one  thousand. 

"A  very  pleasant  feature  of  the  work  was  the  cordial 
cooperation  encountered  on  all  sides.  Helping  hands 
were  extended  everywhere.  The  newspapers  gave 
many  *  reading  notices,'  and  special  advertising  rates, 
and  the  news  bureaus  printed  any  and  all  notices  as  and 
when  requested.  The  Stock  Exchange  Library  Com- 
mittee and  the  Secretary's  Office  placed  their  type- 
writing, multigraph  and  circular  printing  facilities  at 
the  Committee's  disposal,  furnished  the  rooms  with 
desks,  chairs,  etc.,  and  supplied  all  necessary  station- 
ery. The  Stock  Exchange  force  of  telegraphers  and 
other  employees  practically  in  a  body  volunteered  their 
services,  and  those  selected  were  of  great  assistance  in 
preparing  the  card  index  system,  which  was  used  and 
found  to  be  practical  and  eminently  satisfactory.  Ap- 
preciated assistance  was  promptly  tendered  by  The  Tele- 
phone Clerks'  Association,  The  Association  of  Wall 
Street  Employees,  and  The  Wall  Street  Telegraphers' 
Association. 

"Several  cases  of  sickness,  some  very  serious,  were 
taken  care  of  by  Dr.  L.  A.  Dessar,  who  gave  free  medical 
service  to  all  applicants  recommended  by  the  Com- 
mittee, and  provided  hospital  treatment  when  required. 

[59] 


THE    NEW    YORK    STOCK    EXCHANGE 

The  declarations  made  by  the  applicants  demonstrated 
beyond  any  question  that  the  number  of  men,  women, 
girls  and  boys  for  whom  prompt  assistance  in  procuring 
employment  was  imperatively  necessary  had  been 
greatly  under-estimated,  and  evidenced  an  absolute 
argument  endorsing  the  reasons  for  the  Committee's 
existence. 

"Many  who  applied  were  not  in  immediate  need  of 
money,  but  wanted  employment,  which  the  members 
of  the  Committee  sought  for  them  by  individual  soli- 
citation of  everyone  they  knew,  or  knew  of,  who  were 
employers,  and  also  by  careful,  judicious  and  timely 
advertising  in  the  daily  papers.  Such  satisfactory 
results  were  attained,  that  up  to  date  of  this  writing, 
(May  15,  1915),  of  over  seventeen  hundred  applications 
received,  permanent  positions  were  secured  for  about 
seven  hundred  at  rates  of  compensation  that  were  dis- 
tinctly gratifying,  all  conditions  considered.  Two  hun- 
dred and  thirty  were  placed  in  temporary  jobs  for 
periods  ranging  from  a  few  days  to  several  weeks, 
a  number  of  them  being  re-employed  two  or  three 
times.  Four  hundred  and  ninety,  having  been  taken 
back  by  their  former  employers,  withdrew  their  appli- 
cations. 

"Numerous  positions  obtained  for  applicants  while 
the  Exchange  was  closed  were  in  lines  other  than  Stock 
Exchange  business,  and  Wall  Street  clerks  notwith- 
standing their  recognized  efficiency  being,  so  to  speak, 
specially  trained,  it  was  often  found  to  be  difficult,  even 
impossible  to  make  them  fit  the  kind  of  work  to  which 
they  were  more  or  less  strangers.  In  view  of  the  fact 

[60] 


IN   THE   CRISIS   OF   1914 

that  this  circumstance  made  the  accomplishment  desired 
necessarily  slow,  the  outcome  demonstrated  that  it  was 
reasonably  sure. 

"The  request  for  subscriptions  to  the  fund  met  with 
a  hearty  and  generous  response.  Some  apprehension 
was  felt  in  this  regard,  but  the  splendid  result  proved 
to  be  an  agreeable  surprise.  Appeals  for  subscriptions 
to  the  fund  were  made  only  to  Stock  Exchange  mem- 
bers and  firms,  nevertheless,  thanks  to  the  general 
interest  manifested,  and  the  widespread  advertising 
consequent  thereto,  contributions  were  received  from 
generous  friends  outside  of  Wall  Street,  to  an  extent 
that  was  simply  astonishing.  Checks  for  $1,000  each 
were  not  unusual  items,  and  as  a  rule  the  request  was 
made,  'please  do  not  publish  my  name.'  A  well 
known  artist,  in  addition  to  a  cash  subscription,  pre- 
sented one  of  his  paintings  to  the  Committee.  Through 
the  kind  assistance  of  the  Chairman  of  The  Stock  Ex- 
change Luncheon  Club,  the  picture  was  sold  for  the 
substantial  sum  of  $500. 

"The  Treasurer,  with  ample  funds  at  his  disposal, 
was  able  to  meet  calls  for  financial  help  that  were 
frequent  and  pressing,  and  recognizing  the  desirability 
of  experienced  and  competent  assistance  in  making  the 
necessarily  intimate  inquiries,  to  determine  if  applicants 
for  relief  were  worthy,  he  applied  to  Mr.  Robert  W. 
DeForest,  President  of  The  Charity  Organization 
Society,  for  expert  advice  in  the  matter,  and  was  re- 
ferred by  Mr.  DeForest  to  Mr.  Frank  Persons,  Manager 
of  the  New  York  Bureau,  and  Miss  Byington,  in  charge 
of  the  Brooklyn  Branch,  who  rendered  invaluable  ser- 

[61] 


THE   NEW   YORK   STOCK   EXCHANGE 

vices  in  connection  with  many  of  the  applications,  all 
of  which  were  carefully  investigated.  Much  suffer- 
ing and  distress,  and  some  cases  of  actual  destitution 
were  found  to  exist,  and  while  a  detailed  statistical 
statement  would  seem  uncalled  for  and  not  desired  at 
this  time,  the  following  brief  resume  of  the  Commit- 
tee's *  relief  work*  will  undoubtedly  prove  to  be  of 
interest. 

"Financial  assistance  was  extended  to  about  one 
hundred  individuals  and  families;  rent  was  paid  for 
thirty-nine;  food  purchased  for  forty-six;  clothing  was 
furnished  in  seven  instances;  five  persons  were  placed 
in  hospitals;  there  were  a  considerable  number  of  cases 
where  the  Committee  in  whole  or  in  part  took  care 
of  funeral  expenses;  old  debts  for  medical  attendance 
and  drugs ;  agency  fees  and  surety  bonds ;  life  insurance 
premiums,  board  and  lodging,  etc.,  etc.  Many  ap- 
plicants for  assistance  proved  to  be  merely  temporarily 
embarrassed,  they  were  willing  and  anxious  to  be  helped 
but  did  not  want  charity,  so  to  meet  that  emergency  a 
form  of  voucher  was  used,  which  acknowledged  the 
receipt  of  a  'loan'  without  interest,  to  be  repaid  at  the 
convenience  of  the  'borrower.'  That  applied  to  cash 
of  course,  payments  for  groceries,  rent,  etc.,  were  simply 
receipted  for. 

"The  results  achieved,  in  the  opinion  of  many,  would 
seem  to  warrant  an  amendment  to  the  original  idea  that 
a  return  to  normal  conditions  would  involve  the  dis- 
solution of  the  Committee,  and  the  proposition  that  it 
be  made  a  permanent  organization  is  being  seriously 
considered." 

[62] 


IN   THE    CRISIS   OF    1914 

This  record  is  deeply  gratifying  to  the  brokerage 
fraternity  because  it  discloses  the  fact  that,  even  in  the 
midst  of  a  calamity  so  great  that  no  individual  could  feel 
himself  beyond  the  reach  of  insolvency,  the  impulse  to 
succor  the  unfortunate  remained  as  strong  as  ever 
among  them. 


[63] 


CHAPTER  III 

THE  REOPENING  OF  THE  EXCHANGE 

THE  fact  that  the  Stock  Exchange  closed  on  July  31st 
and  did  not  reopen  fully  until  December  15th,  might 
lead  to  the  supposition  that  the  question  of  reopening 
was  not  taken  up  before  December.  Far  from  this  being 
the  case,  the  truth  is  that  reopening  began  to  be  dis- 
cussed immediately  after  the  institution  was  closed. 
Within  twenty-four  hours  of  the  closing  the  minority, 
who  had  not  been  at  first  convinced  of  the  wisdom  of 
that  action,  joined  with  the  majority  in  urgently 
advising  that  the  Exchange  be  not  reopened  soon.  All 
through  the  month  of  August  a  growing  anxiety  over  the 
possibility  of  some  hasty  action  by  the  Exchange  author- 
ities showed  itself  among  brokers,  bankers,  and  even 
some  government  officials.  For  this  anxiety  there  was 
never  any  basis,  because  the  officers  of  the  Exchange 
having  exceptional  means  of  knowing  what  the  dangers 
were,  had  no  intention  of  assuming  the  immense  re- 
sponsibilities of  re-establishing  the  market  without  the 
backing  and  approval  of  the  entire  banking  fraternity. 
Gradually  the  excited  solicitude  about  a  premature 
reopening  subsided  as  the  ultra-conservative  attitude  of 
the  Exchange  was  understood,  and  this  was  followed  ere 
long  by  the  first  symptoms  of  agitation  for  the  establish- 
ment of  some  form  of  restricted  market. 

[64] 


IN   THE    CRISIS   OF   1914 

As  we  have  already  shown  the  restraints  of  July  31st 
were  relaxed  one  by  one  with  the  lapse  of  time.  First  a 
market  at  or  above  the  closing  prices  was  organized  under 
the  Committee  on  Clearing  House;  then  Committees  to 
facilitate  trading  in  listed  and  unlisted  bonds  were 
formed;  and  finally  a  market  was  provided  for  unlisted 
stocks.  All  these  devices,  however,  while  they  brought 
about  readjustment  and  diminution  of  strain,  did  not 
constitute  a  reopening  of  the  Stock  Exchange,  and  the 
restoration  of  that  great  primary  market,  in  some  re- 
stricted way,  became  more  and  more  a  subject  of  public 
interest  and  concern. 

As  we  have  seen,  the  fundamental  reason  for  closing 
the  Exchange  was  that  America,  when  the  war  broke 
out,  was  in  debt  to  Europe,  and  that  Europe  was  sure  to 
enforce  the  immediate  payment  of  that  debt  in  order  to 
put  herself  in  funds  to  prosecute  this  greatest  of  all 
wars.  To  use  an  illustration  popular  in  Wall  Street  at 
the  time,  there  was  to  be  an  unexpected  run  on  Uncle 
Sam's  Bank  and  the  Stock  Exchange  was  the  paying 
teller's  window  through  which  the  money  was  to  be 
drawn  out,  so  the  window  was  closed  to  gain  time.  How 
to  reopen  this  window  in  such  a  way  as  not  to  pay  out 
any  more  money  to  the  foreign  creditor  than  would  suit 
our  own  convenience  was  the  problem  which  soon  began 
to  agitate  many  ingenious  minds.  As  time  went  on 
plans  for  performing  this  difficult  feat  poured  in  upon 
the  Committee  of  Five  in  constantly  increasing  volume, 
and  they  were  frequently  accompanied  by  a  request  on 
the  part  of  their  authors  that,  when  adopted,  the  credit 
for  their  success  be  publicly  attributed  to  them.  An 

[65] 


THE   NEW    YORK   STOCK   EXCHANGE 

edifying  confidence  was  thus  shown  in  what  were  usually 
the  most  visionary  of  these  schemes. 

Space  does  not  permit  the  presentation  of  all  these 
multitudinous  suggestions,  but  as  a  matter  of  infor- 
mation we  shall  quote  extracts  from  some  of  them.  In 
point  of  time,  the  first  communication  to  the  Committee 
on  this  subject  came  on  August  4th  when  a  prominent 
banker  appeared  in  person,  and  gave  vent  to  the  fol- 
lowing oracular  utterance:  "When  the  Exchange  re- 
opens it  should  not  do  business  from  ten  till  three,  but 
should  open  from  ten  o'clock  to  one.  All  transactions 
should  be  for  cash,  and  must  be  delivered  and  paid  for 
the  same  day,  no  contract  to  be  allowed  to  stand  over 
night."  He  also  made  the  prediction,  which  was  amply 
verified,  that  many  weeks  would  elapse  before  the  Ex- 
change could  be  reopened  at  all.  Some  little  time 
elapsed  before  anything  further  was  presented  on  the 
subject,  but  by  the  end  of  August  the  flood  of  plans 
began  and  went  on  increasing  until  the  Exchange  re- 
sumed business. 

On  August  31st  a  communication  was  received  from  a 
well  known  "Statistical  Organization"  for  "Merchants, 
Bankers  and  Investors"  which  said,  in  part:  "In  behalf 
of  my  clients,  who  are  exceedingly  interested  in  making 
it  possible  for  the  Stock  Exchanges  to  open  safely,  I  am 
getting  the  opinion  of  important  bodies  relative  to  the 
proposed  legislation  suggested  on  the  enclosed  slip,  or 
any  other  which  you  think  would  serve  the  purpose.'' 
On  the  enclosed  slip  was  the  following  proposed  legis- 
lation "to  enable  the  Stock  Exchanges  to  open." 

[66] 


IN   THE   CRISIS   OF    1914 

"Be  it  enacted:  That  until  the  President  considers  European 
conditions  fairly  normal  it  shall  be  a  misdemeanor  in  this 
country  to  buy,  sell,  transfer,  give,  or  accept  as  collateral,  shares 
of  stock  or  evidences  of  indebtedness  extending  over  one  year, 
unless  accompanied  by  a  certificate  showing  that  the  owner  is  a 
United  States  citizen,  together  with  such  evidence  as  the  Secre- 
tary of  the  Treasury  may  require  that  the  securities  have  been 
owned  by  United  States  citizens  since  July  30th,  1914." 

In  answer  to  this  proposition  the  Secretary  of  the 
Stock  Exchange  sent  the  following  reply : 

"Answering  your  letter  of  August  29th,  1914,  I  am  instructed 
by  the  Special  Committee  of  Five  appointed  by  the  Governing 
Committee  to  say  that  in  its  opinion  such  legislation  as  referred 
to  would  be  ruinous  to  the  credit  of  the  United  States  through- 
out the  world  for  many  years  to  come." 

In  September  a  letter  was  received  from  a  Western 
banker  suggesting  that  the  slogan  "Buy  a  share  of 
stock"  if  started  "  would  achieve  success,  and  by  so  doing 
would  greatly  benefit  the  stock  market  situation.  This 
movement  would  have  to  be  started  so  as  not  to  create 
the  impression  among  the  many  thousands  of  people  it 
would  reach,  that  it  was  merely  a  movement  for  the 
purpose  of  benefiting  the  stock  brokers,  but  that  it 
would  be  instrumental  in  relieving  the  strain  on  every 
conceivable  business.  Were  such  a  movement  accepted, 
and  should  it  meet  with  results  worthy  of  the  plan  it 
would  be  found  out  when  the  smoke  clears  away  that 
American  people  would  own  American  railway  and  in- 
dustrial shares.  This  could  be  only  for  the  great 
benefit  of  this  country  but  for  Europe  as  well,  for  the 
reason  that  if  Europe  knew  that  there  was  a  good  ab- 

[67] 


THE    NEW   YORK   STOCK   EXCHANGE 

sorbing  power  here  it  necessarily  would  not  dump  its 
stocks  at  frightful  sacrifices." 

In  October  a  junior  member  of  one  of  the  big  private 
banking  houses  appeared  personally  and  stated  that,  in 
his  opinion,  both  domestic  and  foreign  security  holders 
should  be  treated  alike;  that  sales  should  be  conducted 
as  usual;  that  on  reopening  transactions  should  be  re- 
stricted and  only  sales  be  published  and  no  bids  or 
offers.  His  idea  of  restriction  at  the  start  was  that  all 
stock  purchased  should  be  paid  for  on  the  basis  of  10% 
cash  and  the  balance  in  certificates  of  deposit  for  cash, 
which  certificates  were  to  be  non-negotiable  except  be- 
tween banks.  A  Committee  could,  from  time  to  time, 
remove  the  restrictions  from  such  securities  as  seemed 
no  longer  to  require  them.  The  banks  should  be  asked 
to  agree  not  to  call  any  present  loans  and  to  be  very 
sparing  in  calling  for  margins. 

Close  upon  the  heels  of  this  plan  came  a  letter  signed 
"A  Friend  of  the  People"  which  said  "Let  the  Stock 
Exchange  be  opened  strictly  for  the  sale  of  American 
securities  held  by  foreign  stock  holders.  If  they  wish 
to  throw  their  stocks  over  we  can  buy  them  at  our  own 
price.  After  six  or  eight  days'  selling  from  Europe 
the  Exchange  could  be  open  to  the  world.  By  that 
time  the  market  should  be  on  a  rising  scale  and  safe  for 
all." 

This  gentleman  showed  some  originality  in  his  view 
that  the  foreigner  should  be  invited  to  sell  at  once,  in- 
stead of  being  legislated  out  of  the  market  as  so  many 
other  advisers  proposed.  He  seemed  to  be  quite 
oblivious  of  the  difficulties,  however,  that  would  have 

[68] 


IN   THE    CRISIS   OF   1914 

been  encountered  in  inducing  American  security  holders 
to  stand  by  in  pensive  calm  while  the  foreigners  unloaded 
to  their  heart's  content. 

Early  in  November  a  Philadelphia  banker  wrote  a 
long  and  intricate  letter  the  full  details  of  which  we  have 
not  space  to  reproduce,  but  it  contained  the  following 
fragment  which  is  interesting  in  its  way : 

"Could  not  a  plan  be  formulated  between  the  Stock  Ex- 
changes, investment  bankers  and  Federal  Reserve  Banks,  by 
which  the  securities  could  be  valued  on  their  intrinsic  and 
market  values  at  such  prices  that  would  be  considered  reason- 
able to  be  obtained  in  the  next  two  or  three  years;  that  the 
lenders  be  guaranteed  against  any  losses  from  recession  below 
the  stipulated  point  at  which  the  securities  might  later  be 
liquidated,  say  sometime  during  the  year  1917,  if  it  had  not 
been  voluntarily  liquidated  without  loss  before.  Loans  so 
insured  would  have  to  be  in  force  on  securities  carried  prior  to 
a  certain  date,  probably  before  the  Exchange  opened,  if  not  last 
July  30th,  and  that  an  insurance  premium  would  be  charged 
which  would  be  considered  slightly  more  than  adequate.  Any 
surplus  could  be  eventually  pro-rated  to  the  policy  holders. 
There  would  need  to  be  no  obligation  to  take  out  such  insurance 
unless  the  borrowers  preferred.  The  banks  might,  however, 
force  them  to  do  so  in  many  cases  or  pay  off  loans." 

At  about  this  time  many  letters  and  suggestions 
were  received  centering  round  the  main  idea  that  the 
market  be  opened  exclusively  for  such  stocks  as  were 
not  much  held  in  Europe.  Just  as  a  correspondent  cited 
above  seemed  to  believe  that  American  security  holders 
could  be  compelled  to  remain  inactive  while  foreigners 
sold  their  holdings,  so  these  people  imagined  that  hold- 
ers of  one  class  of  securities  could  be  kept  quiet  while 
the  prices  of  some  other  class  were  declining  in  a  free 
market. 

[69] 


THE   NEW   YORK   STOCK   EXCHANGE 

With  the  above  came  a  letter  from  a  correspondent 
whose  thoughts  carried  him  back  to  the  old  days  of 
buyers'  and  sellers'  options,  when  most  of  the  security 
business  was  done  on  30  or  60  day  contracts.  He  pro- 
posed that  the  Exchange  be  reopened  so  that  "all  trades 
made  be  'buyer  60'.  No  other  bids  or  offers  to  be 
valid."  This  would  postpone  for  two  months  the  set- 
tling day  for  the  expected  liquidation,  and  he  felt  cer- 
tain that  by  that  time  there  could  be  no  trouble  in 
meeting  obligations.  Unfortunately  at  the  time  he 
wrote  there  was  no  way  of  obtaining  assurance  of  this 
happy  outcome.  The  same  idea  in  a  somewhat  dif- 
ferent form  came  from  another  correspondent  who, 
instead  of  deferring  payment  by  a  buyer's  option,  pro- 
posed that  stocks  and  bonds  be  sold  on  a  10  per  cent, 
basis  "That  is,  the  seller  of  100  shares  of  Union  Pacific 
at  112  will  deliver  to  buyer  10  per  cent,  of  amount  sold, 
and  receive  a  check  for  $1,120.  together  with  a  contract 
in  which  the  buyer  agrees  to  take  10  per  cent,  more,  or 
say  10  shares  at  the  end  of  six  months,  10  shares  in  9 
months,  10  shares  in  12  months,  10  shares  in  15  months," 
etc.,  etc.,  at  the  original  price  of  $112  per  share.  This 
plan  seemed  to  contemplate  a  bequest  of  unsettled  con- 
tracts to  future  generations  of  unsuspecting  brokers. 
The  author  of  it  was  particularly  solicitous  that,  in  the 
event  of  its  adoption,  his  name  should  be  handed  down 
to  posterity  along  with  the  unfulfilled  contracts. 

An  idea  of  very  wide  prevalence,  which  was  touched 
upon  in  nearly  all  communications  to  the  Committee 
and  which  even  some  bankers  approved,  was  that  a 
preliminary  step  to  reopening  should  be  an  agreement 

[70] 


IN  THE   CRISIS   OF   1914 

by  the  banks  not  to  call  loans  made  prior  to  July  31st, 
1914,  for  some  specified  period  of  time.  This  idea  was 
very  thoroughly  discussed  and  looked  into  by  the  Com- 
mittee. It  was  found  to  present  great  practical  dif- 
ficulties, but  was  never  definitely  abandoned  until  the 
resumption  of  business  was  shown  to  be  possible  with- 
out it. 

The  advice  which  was  received  by  the  Committee  of 
Five  with  regard  to  reopening  was  divided  into  two 
classes.  There  was  that  large  body  of  suggestions, 
some  of  which  we  have  described  above,  which  were 
volunteered  either  in  letters  or  in  interviews,  and  there 
was  the  advice  of  well  known  bankers  and  men  of  finan- 
cial prominence  which  the  Committee  itself  solicited. 
In  the  latter  class  figured  a  member  of  one  of  the  largest 
private  banking  houses  in  New  York  whose  opinions 
and  counsel  were  of  inestimable  value.  This  gentle- 
man, gifted  with  clear  insight  and  a  thorough  grasp  of 
the  situation,  and  generously  anxious  to  be  of  service 
to  the  Committee,  pointed  out  from  the  start  that  the 
reopening  of  the  Exchange  hung  upon  a  favorable  swing 
in  the  balance  of  trade.  When  the  indebtedness  of 
the  United  States  to  Europe  could  be  offset  by  our  ex- 
ports the  danger  of  reestablishing  our  market  would 
become  negligible,  and  this  shrewd  adviser  predicted 
that  the  desired  reaction  in  foreign  exchange  was  much 
closer  at  hand  than  was  generally  supposed.  The  most 
valuable  of  his  admonitions,  and  the  words  which  did 
most  to  strengthen  the  courage  and  resolve  of  the  Com- 
mittee were  these:  "You  will  be  given  all  kinds  of  advice 

[71] 


THE    NEW    YORK   STOCK   EXCHANGE 

by  all  kinds  of  people,  but  remember  that  in  the  end 
the  responsibility  will  fall  upon  you,  therefore  listen 
attentively  to  everything  you  are  told  but  act  on  your 
own  independent  judgment."  This  wise  course  was 
successfully  followed,  and  the  change  in  the  trend  of 
foreign  exchange  came,  as  he  predicted,  much  sooner 
than  was  expected. 

Numerous  other  prominent  men  who  were  turned  to 
for  assistance  showed  the  greatest  willingness  to  render 
every  service  within  their  power,  and  placed  the  Com- 
mittee under  heavy  obligations.  There  was  one  case 
where  the  zealous  desire  to  work  out  a  very  detailed 
solution  of  the  reopening  problem  brought  a  ray  of 
humor  into  these  otherwise  serious  and  anxious  dis- 
cussions. A  certain  private  banker  presented  his 
scheme  in  approximately  the  following  words:  "Be- 
fore you  can  reopen  the  Exchange  you  must  be  in  a 
position  to  know  to  what  extent  Europe  is  going  to 
throw  our  securities  upon  this  market,  and  the  only 
way  to  obtain  this  information  is  to  send  some  members 
of  your  Committee  abroad.  This  delegation  should  go 
first  to  London  and  settle  there  for  a  long  enough  time 
to  get  intimately  acquainted  with  leading  persons  in 
the  financial  world.  This  could  be  done  by  cultivating 
social  intercourse,  dining  and  consorting  with  these 
people  until  a  frank  statement  from  them  could  be 
obtained  concerning  the  probable  volume  of  American 
securities  for  sale." 

As  this  statement  proceeded  visible  signs  of  painful 
emotions  manifested  themselves  among  the  Committee. 
The  Exchange  had  already  been  closed  three  months, 

[72] 


IN    THE    CRISIS   OF    1914 

and  they  were  being  informed  that  a  plan  requiring  a 
lapse  of  some  six  months  more  must  be  carried  out 
before  the  happy  day  of  resumption  would  be  in  sight. 
The  banker  having  paused  for  a  few  minutes'  reflection, 
resumed:  "Then  there  is  France.  Many  American 
securities  are  held  there,  and  as  under  their  system  the 
action  of  individual  investors  is  largely  controlled  by  the 
financial  institutions,  it  will  be  quite  feasible  to  deter- 
mine the  probable  selling  of  French  investors  when  you 
have  got  in  intimate  touch  with  these  institutions." 
Another  additional  six  months'  delay  loomed  to  the 
vision  of  the  demoralized  Committee,  and  sad  words  of 
reproachful  protest  were  about  to  burst  from  some  of 
them  when  their  mentor  again  broke  the  chilly  silence 
of  the  meeting  room.  "Now  that  I  think  of  it  there  is 
Switzerland.  The  Swiss  are  a  thrifty  and  saving  people 
and  undoubtedly  have  much  money  in  our  properties. 
In  spite  of  her  neutrality  Switzerland  will  feel  the 
economic  pinch  of  this  war  and  her  people  will  have  to 
liquidate  many  of  their  foreign  holdings.  It  will  be 
wise,  therefore,  for  you  to  extend  your  inquiries  from 
France  into  Switzerland." 

Here  the  reaction  came,  the  heart-sick  feeling  which 
had  plunged  the  respectfully  attentive  Committee  into 
gloom  vanished,  and  mirthful  emotions  so  possessed 
them  that  it  was  a  hard  task  to  maintain  proper  dignity 
and  decorum.  The  temptation  to  inquire  whether 
this  contemplated  trip  around  the  globe  was  to  include 
an  effort  to  trace  some  American  railroad  bond  into 
the  sacred  precincts  of  Thibet,  or  a  dash  to  the  South 
Pole  to  search  the  abandoned  luggage  of  some  deceased 

[73] 


THE   NEW   YORK   STOCK   EXCHANGE 

explorer,  was  resisted,  and  the  worthy  banker  whose 
imagination  had  taken  such  distant  flights  retired  uncon- 
scious of  the  very  mixed  emotions  he  had  aroused. 
In  the  light  of  the  actual  reopening  that  took  place  only 
six  weeks  later  this  interview  becomes  a  curiosity  worth 
preserving. 

Along  with  other  prominent  men  who  consented  to 
meet  and  consult  with  the  Committee  there  came  Sir 
George  Paish  and  Mr.  Basil  G.  Blackett.  These  two 
gentlemen  had  come  over  from  England  to  consult  our 
government  and  our  banking  fraternity  with  regard  to 
the  abnormal  exchange  situation  created  by  the  out- 
break of  war.  Before  the  Committee  of  Five  they,  of 
course,  dwelt  mainly  upon  the  question  of  reopening  the 
market.  Sir  George  Paish,  being  by  nature  an  optim- 
ist, took  a  very  roseate  view  of  the  outlook,  so  much  so 
that  some  members  of  the  Committee  were  at  first 
disposed  to  fear  (his  mission  being  that  of  a  collector  of 
debts  who  sought  prompt  payment)  that  his  diagnosis 
of  the  situation  was  prompted  more  by  his  hopes  than 
by  his  convictions.  He  proceeded  to  Washington, 
where  he  spent  a  considerable  time  negotiating  with 
the  national  authorities,  and  on  his  way  home  he  again 
appeared  before  the  Committee,  on  November  23rd, 
and  stated  his  belief  that  the  Exchange  could  be  reopened 
at  once. 

In  the  light  of  what  followed  it  is  plain  that  Sir  George 
Paish's  views  were  very  nearly  correct  and  not  by  any 
means  over-optimistic.  The  rapidity  with  which  the 
readjustment  of  exchange  solved  the  problem  presented 

[74] 


IN   THE    CRISIS   OF    1914 

to  the  American  market  was  entirely  in  harmony  with 
his  predictions  and  very  nattering  to  his  judgment. 
His  companion,  Mr.  Basil  G.  Blackett,  was  a  reticent 
young  man  who  seldom  intruded  himself  into  the  dis- 
cussion, but  it  was  noticeable  that  whenever  he  was 
asked  for  an  expression  of  opinion  he  showed  himself  to 
be  thoroughly  informed  as  to  facts  and  sound  in  judg- 
ment. The  Committee  was  certainly  under  an  obliga- 
tion to  these  gentlemen  for  the  time  they  were  willing  to 
give  to  its  deliberations.  In  this  connection  it  is  a 
pleasure  to  record  that  the  authorities  of  the  London 
Stock  Exchange  showed  a  similarly  friendly  disposition. 
All  through  the  period  of  crisis  communications  passed 
between  the  London  and  New  York  Exchanges  and 
were  accompanied  by  a  most  friendly  spirit  of  mutual 
assistance. 

While  plans  for  reopening  the  Exchange  were  dis- 
cussed from  an  early  date,  nothing  definite  took  shape 
up  to  the  end  of  October,  and  at  that  time  the  Com- 
mittee of  Five  were  still  in  the  dark  as  to  how  long 
business  would  continue  to  be  suspended.  Whether  the 
New  Year  would  find  Wall  Street  still  bound  and 
muzzled  was  an  open  question  on  November  1st.  As 
the  month  advanced,  however,  a  very  rapid  change  in 
conditions  began  to  manifest  itself.  On  November  10th 
two  significant  steps  were  taken.  Mr.  Smithers,  Chair- 
man of  the  Unlisted  Stocks  Committee,  appeared  and 
stated  that  his  Committee  intended  making  a  report 
recommending  their  own  discontinuance.  He  was 
followed,  on  the  same  day,  by  Mr.  E.  R.  McCormick, 

[75] 


THE    NEW    YORK    STOCK    EXCHANGE 

Chairman  of  the  Board  of  Representatives  of  the  Curb 
Market  Association,  who  urged  that  the  time  for  a 
formal  reopening  of  the  Curb  was  at  hand.  On  the 
following  day  the  Committee  on  Unlisted  Stocks,  having 
submitted  a  proposed  circular  which  they  wished  to 
issue  in  announcement  of  their  dissolution,  the  Com- 
mittee of  Five  adopted  the  following  rule : 

"The  Special  Committee  of  Five  being  of  the  opinion  that 
the  market  for  unlisted  stocks  has  arrived  at  a  condition  that 
makes  supervision  of  dealings  no  longer  necessary,  hereby 
approve  the  act  of  the  Committee  on  Unlisted  Stocks  in  dis- 
solving their  organization. 

"Ruling  No.  23,  dated  September  24,  1914,  is  hereby  re- 
scinded." 

It  is  needless  to  say  that  this  action,  together  with  its 
ratification  by  the  Committee  of  Five,  was  first  sub- 
mitted to  and  approved  by  the  Clearing  House  banks. 
Unlisted  stocks  comprised  a  group  of  properties  which 
were  practically  not  held  abroad,  and  the  reason  for 
holding  them  under  close  restraint  at  first  was  the 
danger  of  the  sentimental  effect  on  a  panicky  situation 
in  case  their  prices  should  undergo  a  violent  decline.  It 
having  been  demonstrated  that  such  a  decline  was  not  to 
be  feared,  the  Committee  in  charge  were  only  too  glad  to 
relinquish  the  difficult  duty  of  supervising  the  trading  and 
open  a  free  market.  It  was  further  decided  that  the 
restraint  upon  free  quotation  and  publication  of  prices 
be  simultaneously  removed  from  the  unlisted  dealings. 

As  a  natural  sequence  to  the  above  action,  on 
November  12th,  the  Curb  Association  issued  the 
following  notice : 

[76] 


IN    THE    CRISIS    OF    1914 

"To  the  Members  of  the  New  York  Curb  Market  Association: 
"GENTLEMEN: 

"It  has  been  decided  that  the  improvement  hi  the  general 
financial  situation  has  removed  the  necessity  for  restrictions 
over  trading  in  unlisted  stocks,  therefore  you  are  hereby  notified 
that  the  New  York  Curb  Market  will  officially  resume  business 
on  Monday,  November  16th,  1914,  at  10  o'clock  A.M. 

"This  action  on  the  part  of  the  Chairman  of  the  New  York 
Curb  Market  Association  has  received  the  approval  and  sanction 
of  the  Committee  of  Five  of  the  New  York  Stock  Exchange. 

"E.  R.  McCoRMicK, 

"  Chairman." 


On  November  13th,  the  Committee  of  Five  ruled 
that: 

"Unrestricted  trading  in  Listed  Municipal  and  State  Bonds  for 
domestic  account  may  now  be  resumed,  but  that  all  transac- 
tions for  future  delivery  must  be  submitted  for  approval,  as 
heretofore,  to  the  Sub-Committee  of  Three  on  Bonds  at  the 
Clearing  House  of  the  New  York  Stock  Exchange." 

On  November  16th,  Mr.  Frank  W.  Thomas,  Vice- 
President  of  the  Chicago  Stock  Exchange  and  also 
Chairman  of  their  "Trading  Committee,"  appeared  be- 
fore the  Committee  of  Five  and  stated  that  it  was  the  in- 
tention of  the  authorities  of  their  Exchange  to  meet  on 
the  coming  Wednesday  to  discuss  the  advisability  of 
opening  on  Monday,  November  23rd.  He  asked  for 
information  regarding  the  attitude  of  the  New  York 
Stock  Exchange  in  the  matter  of  securities  listed  on 
both  exchanges.  The  Committee  requested  him  not 
to  permit  dealings  in  Chicago,  in  such  securities,  at 
prices  below  the  minimum  prices  established  in  New 
York. 

[77] 


THE    NEW    YORK   STOCK   EXCHANGE 

Thus  one  after  another  came  the  evidences  of  a 
sudden  transformation  in  the  financial  conditions  and  of 
a  consequent  movement  toward  the  resumption  of 
business,  all  of  which  rested  fundamentally  on  an  im- 
mense increase  of  our  exports  and  the  resulting  favor- 
able movement  of  foreign  exchange. 

Encouraged  by  these  happenings  the  Committee  of 
Five  actively  took  up  numerous  plans  for  letting  down 
the  bars.  There  had  been  for  some  tune  considerable 
pressure  exerted  by  those  members  of  the  Exchange 
who  were  distinctively  bond  brokers,  to  have  the  bond 
business  transferred  from  the  Clearing  House  to  the 
floor  of  the  Exchange.  They  thought  that  this  step 
would  make  a  wider  and  more  satisfactory  market  for 
bonds  and  that  the  supervision  of  the  Committee  of 
Three  could  be  exerted  in  one  locality  as  well  as  in  the 
other.  In  view  of  the  rapid  improvement  in  conditions, 
and  the  fact  that  unlisted  bonds  had  been  given  an  un- 
restrained market  by  the  dissolution  of  the  Committee 
of  Seven,  it  was  thought  that  the  moment  had  come  for 
taking  this  step  in  advance.  Preparations  were  at  once 
set  on  foot  to  restore  the  restricted  bond  market  to  the 
floor  and  tnereby  insure  that  partial  opening  of  the 
doors  of  the  Exchange  which  would  be  the  entering  wedge 
to  ultimate  resumption. 

Unfortunately  the  plans  of  the  Committee  in  this  re- 
gard were  not  sufficiently  safeguarded.  Through  some 
unforeseen  leak  the  news  of  their  intentions  got  abroad, 
and  brought  on  some  awkward  consequences.  The 
first  of  these  was  the  appearance  of  a  private  banker,  the 

[78] 


IN   THE   CRISIS   OF    1914 

same  one  who  early  in  August  had  predicted  a  long 
period  of  suspension,  to  protest  against  greater  freedom 
in  bond  dealings.  He  foresaw  terrible  results  if  this 
rash  act  were  permitted  and  claimed  to  have  information 
that  European  holders  of  bonds  were  awaiting  this 
chance  to  swamp  the  market.  The  Committee  were 
not  much  alarmed  by  this  gentleman's  warnings  and 
were  proceeding  with  their  nefarious  scheme  when  a 
further  warning  was  addressed  to  them.  There  was  a 
certain  member  of  a  Stock  Exchange  firm  who  was  on 
friendly  terms  with  some  of  the  Washington  authorities, 
and  who  seems  to  have  felt  it  his  duty  to  see  that  the 
Exchange  did  nothing  to  give  offense  in  these  high 
quarters.  When  this  individual  learned  what  the  Com- 
mittee had  in  mind  he  sent  word  that  it  would  be  pru- 
dent for  them  to  let  a  particular  government  officer 
know  their  plans  before  putting  them  into  execution. 
Thinking  that  this  warning  must  be  based  on  some 
special  information  the  Committee  at  once  authorized 
this  gentleman  to  inform  his  friend  in  the  Government 
of  their  plan.  This  was  on  Wednesday,  November  18th, 
and  the  intention  of  the  Committee  was  to  place  the 
bond  market  upon  the  floor  of  the  Exchange  on  the  fol- 
lowing Monday.  On  Thursday  this  well  meaning  but 
somewhat  misguided  go-between  reported  that  he  had 
communicated  with  Washington  and  that  his  friend 
there  had  expressed  the  desire  to  see  some  member  of 
the  Committee  before  any  further  steps  were  taken. 
This  news  hit  the  plans  of  the  Committee  somewhat 
after  the  manner  of  a  submarine  torpedo.  They  had 
everything  in  readiness  for  Monday,  and  the  news- 

[79] 


THE    NEW   YORK    STOCK   EXCHANGE 

papers,  which  had  also  got  wind  of  their  intentions,  had 
already  announced  to  the  public  unequivocally  that  a 
restricted  bond  market  would  be  started  on  that  day. 
With  such  limited  time  to  act  in  there  was  nothing  to 
resort  to  but  postponement  and  a  notice  was  immediately 
given  to  the  press  in  the  following  words : 

"The  Special  Committee  of  Five  states  that  while  the  plan 
outlined  by  the  newspapers  concerning  a  further  extension  of 
the  present  method  of  dealing  in  bonds  was  substantially  that 
under  consideration  by  the  Committee,  the  magnitude  of  the 
interests  affected  has  led  to  unforeseen  difficulties  which  will 
necessitate  further  consideration.  When  a  decision  is  reached 
ample  notice  will  be  given  to  the  public  officially." 

A  letter  was  at  once  sent  to  the  Government  official 
notifying  him  of  the  readiness  of  the  Committee  to 
visit  him  at  his  convenience,  and  the  following  day, 
Saturday,  he  very  courteously  sent  them  a  telegram 
explaining  that  the  suggestion  of  an  interview  had  in  no 
way  emanated  from  him  but  that  he  had  misunderstood 
the  intermediary  (who  had  communicated  by  telephone) 
and  supposed  that  the  interview  was  being  sought  by 
the  Exchange.  So  this  mighty  tempest  in  a  tea  pot 
resulted  from  the  excessive  zeal  of  an  outsider  who  while 
trying  to  pilot  the  Committee  into  safe  waters  succeeded 
in  running  it  on  a  reef  of  his  own  creation. 

Immediately  on  ascertaining  the  true  situation  the 
following  notice  was  sent  out  on  Saturday : 

"The  Special  Committee  of  Five  announces  that  having  con- 
summated its  plan  for  bond  transactions  on  the  Exchange  under 
certain  specified  restrictions,  the  same  will,  in  accordance  with 
the  Constitution  of  the  Exchange,  be  submitted  to  the  Governing 

[80] 


IN   THE   CRISIS   OF   1914 

Committee  at  the  regular  meeting  to  be  held  on  the  24th  inst. 
If  the  recommendations  of  the  Special  Committee  are  adopted 
by  the  Governing  Committee  the  plan  will  go  into  operation  at 
an  early  date." 

Some  of  the  newspapers  having  announced  positively 
that  this  new  move  with  regard  to  bonds  would  take 
place  on  Monday,  the  23rd,  they  were  very  indignant 
that  it  should  be  postponed  without  supplying  them 
with  a  good  and  sufficient  reason.  The  Committee, 
on  its  part,  feeling  that  it  was  undesirable  to  publish 
the  details  of  an  awkward  misunderstanding  with  a 
public  official,  who  would  not  want  his  name  dragged 
into  a  matter  that  he  had  in  no  way  concerned  himself 
with,  refused  to  furnish  the  reason.  This  at  once  let 
loose  upon  them  those  vials  of  reportorial  wrath  which, 
up  to  that  time,  they  had  been  fortunate  in  escaping. 
One  journal  amicably  stated  that  this  incident  merely 
emphasized  a  fact  which  had  all  along  been  obvious, 
namely  that  the  Committee  were,  and  had  been  from 
the  start,  totally  incompetent  to  perform  the  task  in- 
trusted to  them. 

While  a  gentle  shower  of  epithets  fell  upon  their  de- 
voted heads  the  Committee  proceeded  with  their  work 
and,  having  obtained  the  necessary  authority  from 
the  Governing  Committee,  they  sent  out  the  following 
ruling  on  November  24th: 

"That  so  much  of  rule  No.  21  as  applies  to  dealings  in  listed 
bonds  through  the  Clearing  House  be  rescinded,  to  take  effect 
at  the  close  of  business  on  Friday,  November  27th,  1914.  Be- 
ginning on  Saturday,  November  28,1914,  dealings  in  bonds  listed 
on  the  Exchange  will  be  permitted  on  the  floor  of  the  Exchange 

[81] 


THE   NEW   YORK   STOCK   EXCHANGE 

between  the  hours  of  ten  and  three  o'clock  each  day  except  Sat- 
urday, when  dealings  shall  cease  at  twelve  o'clock  noon.  Such 
dealings  to  be  under  the  supervision  and  regulation  of  the  Com- 
mittee, and  to  be  for  'cash'  or  'regular  way'  only  and  not  below 
the  minimum  prices  as  authorized  by  the  Committee  from  time  to 
tune.  Transactions  at  prices  other  than  those  allowed  by  the 
Committee,  or  in  evasion  of  the  Committee's  rules,  are  prohibited. 
All  rules  of  the  Exchange  governing  delivery  and  default  on 
contracts  covered  by  this  resolution  shall  be  in  force  on  and 
after  Saturday,  November  28th,  1914,  but  the  closing  of  con- 
tracts 'under  the  rule'  shall  be  subject  to  the  foregoing  provis- 
ions." 


Thus  on  Saturday,  November  28th,  the  doors  of  the 
Stock  Exchange  were  once  more  thrown  open  and  a 
restricted  market  in  listed  bonds  was  established  on  the 
floor  under  the  watchful  eye  of  the  Committee  of  Three. 
There  was  some  hesitancy  at  first  as  to  whether  these 
bond  transactions  should  be  quoted  on  the  ticker  in  the 
accustomed  way,  but  before  the  day  of  opening  came 
it  was  decided  to  report  them  as  usual.  By  requiring 
that  all  trades  should  be  for  "cash"  or  "regular  way" 
and,  in  a  subsequent  ruling,  by  instructing  all  purchasers 
of  bonds  to  report  to  the  Committee  when  such  bonds 
were  not  delivered  by  2.15  P.M.  on  the  day  following  the 
purchase,  it  was  hoped  to  impede  any  sudden  or  violent 
liquidation  of  foreign  securities. 

The  restoration  of  the  bond  market  to  the  floor  was  a 
complete  success,  and  at  about  the  same  time  a  general 
revival  of  public  confidence  showed  itself  in  a  rise  in 
prices  first  in  the  street  market  and  then  in  the  Stock 
Exchange  Clearing  House  itself.  Encouraged  by  these 
symptoms  the  Committee  of  Five  at  once  formulated 

[82] 


IN   THE    CRISIS    OF   1914 

a  plan  for  carrying  the  reopening  a  step  farther.  A  list 
of  stocks  which  were  not  international  in  character  was 
made  out  and  submitted  to  the  Bank  Clearing  House 
Committee,  and  with  their  concurrence  it  was  decided 
to  place  these  upon  the  floor  of  the  Exchange  to  be  traded 
in  at  or  above  certain  prescribed  minimum  prices. 

At  a  meeting  of  the  Governing  Committee  on  Decem- 
ber 7th  the  following  resolution  was  adopted:  "That 
the  Committee  of  Five  is  hereby  empowered  to  permit 
dealings  on  the  floor  of  the  Exchange  in  such  stocks  as 
it  may  designate  under  restrictions  prescribed  by  it. 
That  the  Committee  of  Five  is  hereby  authorized  to 
enforce  stock  loan  contracts  whenever  in  its  judgment 
it  may  deem  best  so  to  do,  and  that  the  resolution  of 
July  31st,  1914,  be  modified  in  this  respect." 

A  list  of  minimum  prices  was  fixed  upon  that  aver- 
aged some  two  or  three  points  below  the  closing  prices 
of  July  31st,  and  on  December  llth  the  Committee 
issued  a  ruling  prescribing  the  conditions  for  the  partial 
resumption  of  stock  dealings  on  the  Exchange.  We 
here  present  it  in  full : 

"The  Special  Committee  of  Five  rules  that  Rule  13  be  re- 
scinded, in  so  far  as  it  applies  to  stocks  admitted  to  dealings  in 
the  Exchange  from  time  to  time  by  the  Committee  of  Five, 
said  rescision  to  take  effect  at  the  close  of  business  on  Friday, 
December  11,  1914. 

"Beginning  on  Saturday,  December  12,  1914,  dealings  in 
certain  specified  stocks  listed  on  the  Exchange  will  be  permitted 
on  the  floor  of  the  Exchange  between  the  hours  of  ten  and  three 
o'clock  each  day  except  Saturday,  when  dealings  shall  cease 
at  twelve  o'clock  noon. 

"Dealings  in  such  stocks  as  shall  be  specified  by,  and  be  under 
the  supervision  and  regulation  of  the  Committee,  shall  be  for 

[831 


THE   NEW   YORK   STOCK   EXCHANGE 

'cash'  or  'regular  way'  only  and  not  below  the  minimum 
prices  authorized  by  the  Committee  from  time  to  time.  Trans- 
actions at  prices  below  those  allowed  by  the  Committee,  or  in 
evasion  of  its  rules  are  prohibited. 

"A  list  of  stocks  to  be  admitted  to  dealings  on  the  Exchange 
accompanies  these  rulings.  Minimum  prices  on  same  will  be 
announced  on  December  11,  1914. 

"All  stocks  quoted  on  July  30th  at  or  below  15  per  cent.,  or 
$15  per  share,  may  be  dealt  in  without  restriction  as  to  price, 
but  are  included  in  the  list  for  your  guidance,  and  will  be  marked 
'Free'  in  the  price  column. 

"All  stocks  admitted  to  dealings  as  above,  which  were  being 
cleared  through  the  Stock  Exchange  Clearing  House  at  the  close 
of  business  on  July  30,  1914,  will  be  similarly  cleared  from  the 
opening  of  business  on  the  12th  day  of  December,  1914. 

"All  stocks  admitted  to  dealings,  which  were  being  dealt  in 
'Ex-Clearing  House'  at  the  close  of  business  on  July  30,  1914, 
will  be  similarly  dealt  in  from  the  opening  of  business  on  the 
12th  day  of  December,  1914. 

"Stocks  admitted  to  dealings  on  the  Exchange  will  cease  to 
be  dealt  in  through  the  Stock  Exchange  Committee  on  Clearing 
House.  Stocks  not  so  admitted  will  continue  to  be  dealt  in 
through  the  Committee  on  Clearing  House  until  further  notice. 

"All  rules  of  the  Exchange  governing  delivery  and  default  on 
contracts  covered  by  these  rules  shall  be  in  force  on  and  after 
the  12th  day  of  December,  1914,  but  the  closing  of  contracts 
'  Under  the  Rule '  shall  be  subject  to  the  foregoing  provisions. 

STOCKS   LOANED 

"The  Loan  Market  for  stocks  will  reopen  at  ten  o'clock,  A.M. 
on  the  12th  day  of  December,  1914,  for  such  stocks  only  as  are 
admitted  to  dealings  on  the  Exchange,  from  and  after  which  date 
all  rules  of  the  Exchange  governing  the  borrowing  and  loaning 
of  such  stocks  shall  be  in  force,  but  the  closing  of  contracts 
'Under  the  Rule'  shall  be  subject  to  the  foregoing  provisions. 

"The  above  rule  shall  apply  to  stocks  borrowed  and  loaned 
prior  to  and  since  July  30,  1914. 

"Borrowed  and  loaned  stocks  will  be  cleared  as  before  July 
30th  last,  but  only  in  cases  where  such  stocks  are  admitted  to 
dealings  on  the  Exchange. 

"Loans  of  stocks  not  admitted  to  dealings  on  the  Exchange 
will  continue  to  stand  until  further  notice,  unless  otherwise 
agreed  to  by  both  parties  to  the  contract." 

[84] 


IN   THE   CRISIS   OF    1914 

On  Monday,  December  14th,  the  next  business  day 
after  the  limited  list  of  stocks  had  been  placed  upon  the 
floor  of  the  Exchange,  it  was  reported  to  the  Committee 
that  the  volume  of  transactions  taking  place  in  the 
Stock  Exchange  Clearing  House,  in  the  stocks  not  yet 
admitted  to  the  floor,  had  risen  to  such  proportions  as 
seriously  to  embarrass  that  institution.  As  this  activity 
was  taking  place  on  a  rising  market  and  signs  of  increas- 
ing confidence  were  constantly  multiplying,  the  Com- 
mittee quickly  resolved,  on  the  same  day,  to  transfer 
all  stocks  to  the  floor  on  the  following  morning,  and 
notice  to  that  effect  was  at  once  sent  out.  The  un- 
expected appearance  of  this  notice  on  the  tape  was 
greeted  with  cheers  of  approbation  in  the  Exchange, 
and  on  December  15th  the  long  hoped  for  reopening 
of  the  entire  market  had  become  a  reality. 

The  Committee  of  Five  by  this  act  brought  their 
own  rule  to  a  close.  Arbitrary  power  had  been  put 
in  their  hands  to  be  exercised  while  the  Exchange  re- 
mained closed,  but  now  that  it  was  reopened  authority 
naturally  returned  to  its  legitimate  channels.  The 
Committee  therefore  presented  the  following  report 
to  the  Governing  Committee  on  December  15th: 

"The  Special  Committee  of  Five  beg  leave  to  report  that  in  as 
much  as  the  crisis  that  existed  on  July  31st,  1914,  has  passed,  and 
financial  affairs  in  this  country  have  resumed  a  practically 
normal  condition,  the  necessity  for  the  Committee's  continuance 
no  longer  exists  and  hence  they  request  to  be  discharged.  Be- 
fore being  discharged  they  desire  to  express  their  appreciation 
of  the  trust  and  confidence  placed  in  them  by  the  Governing 
Committee.  They  also  wish  to  express  to  the  members  of  the 

[85] 


THE   NEW   YORK   STOCK   EXCHANGE 

Exchange  their  appreciation  of  the  manner  in  which  their 
rulings  have  been  respected,  even  though  in  many  cases  it 
involved  great  sacrifices. 

Resolved,  That  the  report  of  the  Special  Committee  of  Five 
be  received,  and  the  Committee  be  discharged." 

Thus,  like  the  sudden  and  unexpected  shifting  of  a 
dream,  the  Committee  of  Five  who  so  recently  had 
almost  despaired  of  fixing  a  date  for  reopening  the  Ex- 
change, found  the  Exchange  open  and  themselves  a 
memory  of  the  past.  The  abruptness  of  their  exit  was 
tempered,  however,  in  the  following  manner.  As  above 
described,  the  reopening  was  accompanied  by  the 
restraint  of  certain  arbitrary  minimum  prices  below 
which  securities  could  not  be  sold.  It  was  felt  that, 
owing  to  the  critical  and  indecisive  state  of  the  war, 
there  was  a  continuing  possibility  of  some  news  that 
might  renew  a  crisis  in  the  market.  While  this  possi- 
bility lasted  the  maintenance  of  minimum  prices  fur- 
nished an  automatic  check  upon  sudden  panic  which 
would  avoid  raising  the  question  of  a  second  closing  of 
the  Exchange.  In  order  to  regulate  these  minimum 
prices  and  so  change  them  from  time  to  time  as  to  keep 
in  accord  with  normal  supply  and  demand,  it  was 
necessary  to  appoint  a  Committee,  and  the  original 
Five  were  continued  in  office  with  this  sole  regulative 
power.  As  bonds  were  similarly  restricted,  the  Com- 
mittee of  Three  also  lingered  on  the  scene  for  the  same 
purpose.  The  two  Committees  performed  this  unusual 
function  up  to  the  first  of  April,  1915,  when  the  very 
marked  improvement  in  conditions  led  to  the  abandon- 
ment of  this  last  vestige  of  artificial  restraint. 

[86] 


IN   THE    CRISIS   OF   1914 

It  is  instructive,  as  showing  the  workings  of  some 
minds,  that  although  the  Committee  of  Five,  in  its 
capacity  of  regulator  of  minimum  prices,  issued  a 
public  statement  that  they  were  under  no  circumstances 
going  to  valorize  or  sustain  prices  but  merely  expected 
to  maintain  a  safeguard  against  some  unforseen  shock 
to  confidence,  many  people  wrote  them  urgent  letters 
asking  that  in  certain  properties  a  minimum  should  be 
maintained  which  would  render  selling  impossible.  It 
was  quite  futile  to  try  to  disabuse  some  of  these  cor- 
respondents of  the  idea  that  no  decline  should  be 
allowed  in  properties  that  they  were  interested  in. 

To  one  who  meditates  upon  the  singular  experience 
which  was  thus  abruptly  brought  to  a  close,  there  are 
a  few  features  of  it  which  stand  out  as  meriting  the 
especial  attention  of  all  members  of  the  Stock  Exchange. 
First  of  all  it  was  most  impressively  shown  what  appar- 
ently hopeless  tasks  can  be  accomplished  by  loyal 
cooperation.  If  at  any  time  up  to  July,  1914,  any  Wall 
Street  man  had  asserted  that  the  stock  market  could  be 
kept  closed  continually  for  four  and  one-half  months  he 
would  have  been  laughed  to  scorn,  and  yet  this  supposed 
impossibility  was  performed  by  the  joint  and  de- 
termined action  of  the  financial  community.  On  the 
other  hand,  and  as  a  counterpart  to  this  valuable  ex- 
perience, it  must  never  be  lost  sight  of  that  the  extra- 
ordinary war  measures  of  1914  may  be  a  danger  to  the 
future  if  they  are  misinterpreted.  There  is  a  possibility 
(even  a  probability)  that  when  ordinary  crises  arise  in 
times  to  come,  people  who  find  themselves  financially 

[87] 


THE    NEW   YORK   STOCK  EXCHANGE 

embarrassed  will  bring  enormous  pressure  upon  the 
authorities  of  the  Exchange  to  renew  the  drastic  ex- 
pedients of  the  famous  thirty-first  of  July.  It  is  to  be 
sincerely  hoped  that  there  will  always  be  firmness 
enough  in  the  Governing  Committee  to  resist  this 
pressure.  The  great  world  war  coming,  as  it  did, 
without  warning  was  a  rare  and  epoch-making  event 
that  warranted  unheard  of  action  and  to  indulge  in  such 
action  for  any  lesser  cause  would  be  utterly  disastrous. 

The  Committee  of  Five  seems  to  have  been  brought 
into  existence  under  a  lucky  star.  That  five  men  called 
together  so  suddenly  in  such  an  emergency  should  have 
worked  with  absolute  harmony  for  so  long  a  time  is  quite 
remarkable.  Their  unanimity  was  never  troubled  but 
once.  On  one  of  the  first  few  days  of  their  career  a 
rather  positive  and  aggressive  member,  arguing  with  a 
colleague,  said  "you  must  remember  that  you  are  only 
one  of  this  Committee."  The  Committeeman  thus 
addressed  responded  with  calm  determination  "and  you 
must  not  forget  that  you  are  not  the  other  four."  This 
encounter  excited  much  amusement  among  the  remain- 
ing members  and  was  the  one  and  only  occasion  where 
anything  resembling  a  serious  difference  appeared. 

In  addition  to  being  blessed  with  harmony  they  were 
very  fortunate  in  having  passed  rulings  for  so  long  a 
time  without  giving  forth  anything  that  had  to  be  re- 
called. In  view  of  the  complexity  of  the  conditions, 
fortune  must  have  aided  in  this  as  well  as  judgment. 
They  were,  cf  course,  treated  to  much  wisdom  (after  the 
event)  by  their  critics.  They  were  told  that  they  might 
have  opened  the  Exchange  sooner  after  the  actual 

[88] 


IN   THE   CRISIS   OF   1914 

opening  had  proved  a  success,  and  they  were  informed  in 
the  editorial  columns  of  a  prominent  journal  that  their 
fear  of  foreign  liquidation  had  been  an  "obsession" 
which  lacked  justification.  These  critics  never  were 
heard  from  while  the  event  was  in  doubt,  and  con- 
sequently the  Committee  did  not  profit  much  by  their 
learned  sayings. 

It  can  be  stated  with  confidence  that  the  intelligent 
resourcefulness  of  the  Stock  Exchange,  in  conjunction 
with  the  splendid  public  spirited  work  of  the  New  York 
banks  and  the  press,  warded  off  a  calamity  the  possible 
magnitude  of  which  it  would  be  difficult  to  measure. 
The  success  of  this  undertaking  should  be  a  source  of 
pride  and  emulation  to  those  future  generations  of 
brokers  who  will  have  to  solve  the  problems  of  the  great 
financial  market  when  in  the  words  of  Tyndall,  "you 
and  I,  like  streaks  of  morning  cloud,  shall  have  melted 
into  the  infinite  azure  of  the  past." 


THE    END 


[89] 


THE   COUNTRY   LIFE   PRESS 
GARDEN   CITY,  N.  Y. 


UC  SOUTHERN  REGIONAL  LIBRARY  FACILITY 


A     000  960  588     2 


